Total Insurable Value (TIV)

What Is Total Insurable Value (TIV)?

Total insurable value (TIV) is the value of property, inventory, equipment, and business income covered in an insurance policy. It is the maximum dollar amount that an insurance company will pay out if an asset that it has insured is deemed a constructive or actual total loss.

Total insurable value (TIV) may include the cost of the insured physical property, as well as the contents within it, such as machinery and other equipment. If the insurance policy covers a commercial property, loss of income as a result of damage to the property can also be factored into the total insurable value (TIV).

How Total Insurable Value (TIV) Works

Total insurable value (TIV) determines the maximum coverage limit for an insurance policy by conducting a full inventory of a property and its contents. The insurer may provide worksheets to help organize inventory. Businesses might also show specific purchase orders and sales records used for tax purposes.

For the insured, it is necessary to think carefully about each item and its worth. All inventory and other items that are critical to business operations should be taken into account. Exclusion of essential equipment or inventory from total insurable value (TIV) may result in a costly underestimation after sustaining a loss.

The valuation clause of the policy usually contains the formula for calculating the total insurable value (TIV).

For policies that cover loss of income, insurers estimate the amount of revenue generated by the insured property and use this figure as a baseline when determining the amount of income lost while replacing the damaged property. The time it takes to restore damaged property will vary according to the type of business, but a 12-month window is typical. 

Example of Total Insurable Value (TIV)

A business with a total insurable value (TIV) of $2 million and a commercial property rate of $0.3 per $100 of total insurable value (TIV) will pay an annual premium, the specified amount of payment required to provide coverage under a given insurance plan**,** of $6,000 ($2 million (TIV) x $0.3/ $100).

Special Considerations

The higher the total insurable value (TIV) is, the higher the premium will be for coverage. Sometimes, to minimize these expenses, property owners may opt to protect an amount less than the total insurable value (TIV). Alternatively, they might lock in a lower premium by paying a higher deductible — out-of-pocket costs to be paid before insurance coverage kicks in.

Most policies require the insured to pay a deductible before the insurer covers losses. In some cases, it’s possible to elect for higher deductibles, which typically result in lower premiums since the insured assumes more risk and financial responsibility for claims. The insured may also be responsible for co-insurance with losses.

Total Insurable Value (TIV) vs. Replacement Cost

It’s essential to differentiate between replacement cost and insurable value when choosing coverage. Replacement cost is the cost of replacing damaged items with items of the same value and type, while insurable value sets a limit on how much the insurer will pay for an item.

It's important to note that the cost of item repair or replacement can potentially exceed the insurable value.