Blanket Coverage and Margin Clauses?
Blanket insurance covers multiple items or locations all at once, the way a blanket covers all items underneath it. You can apply blanket insurance to multiple locations of a business, all your building contents, all of one kind of business property (such as mobile equipment) or all your staff (as opposed to insuring just a few who handle financial accounts or work abroad).
Blanket insurance is a convenient way to spread coverage across many similar insurable entities or items. It means the entire payout limit of your policy is available to even one location should a catastrophe occur. Many businesses with multiple locations that are similar, such as dry cleaners, gift shops or pizzerias, will insure them all under one commercial property policy on a blanket basis.
Some companies prefer blanket policies because they insure inventory or business property that is moved between locations. For example, imagine you need to temporarily move computers or inventory from one location to another for a conference. With a blanket policy, you would not have to adjust your coverage. No matter where your business property is under the blanket policy, it is insured.
While blanket insurance is convenient, there are some serious caveats when it comes to property insurance. And it’s especially important to understand those caveats if you have a margin clause in your commercial property policy.
How a margin clause works
A margin clause is a section of an insurance policy that limits how much a property can grow in insurable value from what was originally declared in the coverage contract, in what’s called the “statement of value.” The margin may be stipulated as a growth percentage, such as 25% growth in value, or as a value percentage, such as 125% of the stated value of a piece of property.
At claim time, your insurer will calculate the allowable increase and determine whether your current valuations are within your margin. Anything outside your margin of allowable increase in value will not be insured.
For example, say you have three buildings valued initially at $2 million each, for a total value of $6 million. The properties are all insured under blanket coverage. Your blanket policy includes a margin clause that limits the growth in value of coverage to 25%. Even if the market changes and the cost of repairing the buildings rises to $7 million, you would still have full coverage. That’s because the new value of $7 million is within the 25% margin of your total original stated value of $6 million.
If, however, the value of your property increases to $8 million, your insurance payout would fall short.
Not only that, but you could be hit with a penalty for underinsuring your property.
Your agent or broker can help you fully understand margins, their calculations across properties valued under blanket insurance, and any underinsurance penalties. They are a little complex, but you should understand them since they factor in to costs you will have to bear.
That said, blanket insurance is a very popular product. When it’s done right, it offers convenient, flexible protection for a broad set of properties. You might not be able to avoid margin clauses, but you can work within them by keeping your insurance policy up to date and increasing your limits if necessary. Make sure you work with your insurance professional to understand the ins and outs of blanket coverage and margin clauses. This will help you avoid any surprises at claim time.