HOW DO WE KNOW IF OUR ASSOCIATION HAS AN ADEQUATE BUILDING LIMIT IN OUR INSURANCE POLICY?
The only way to absolutely know if your building has an adequate building limit is to pay for a professional appraisal. An appraisal will provide an in-depth and accurate depiction of the property.
Without an appraisal, the carriers rely mostly on the type of construction of the building and the square footage. Sometimes, the square footage is not listed in the governing documents and has to be estimated. Estimates can be wrong, which is why a professional appraisal can be crucial to ensuring you have the proper building limit.
It is important to keep in mind that your building limit is for the cost to replace your building and not the cost to sell your building. It is also important to remember that construction costs of labor and materials will vary from city to city.
Speaking of costs of construction, the price of almost all materials has increased drastically (seems like the price of everything has increased drastically, so what else is new?).
Some carriers will automatically increase your building limit each year in an attempt to keep up with inflation, but when inflation is as drastic as it has been recently, then even their annual increase may not be sufficient enough to cover a total loss. There are options that some carriers offer called Extended Replacement Cost (ERC) and Guaranteed Replacement Cost (GRC). These are great ways to help ensure that your building is insured to value.
With ERC, the carrier will provide an additional 25% of the building limit. For example, if your Building Limit is $10,000,000 and you have ERC, then your building limit is essentially $12,500,000. A nice little buffer to help with any inflation. GRC, on the other hand, is even nicer because it ensures that your Building Limit is adequate, and the carrier will pay that portion of the loss in full. With GRC, you normally do not have an exact Building Limit listed on the policy, but the carrier still needs a figure to use to rate for the appropriate premium. Not all carriers offer ERC or GRC but when they do it is wise to take advantage of the extra protection.
It is very rare for there to be a total loss, but when tragedy hits, you will find some peace in knowing that your building is covered adequately.