In this blog entry I will expand on the rule quoted below.

"All single items with a valuation of $5,000 or more, shall be entered separately."¹

This rule requires that any individual item worth $5,000 or more, be enrolled in its own line with its own assessed value. Although the ratchets, hoses, impact wrenches, bolt bin, and miscellaneous items that take up most of the space in your shop can all be enrolled in one line called shop contents and be assigned a combined value of $90,000, the $15,000 ironworker and $6,000 rotary screw compressor should each be enrolled on individual lines. Pretty straight forward.

This rule's purpose is to keep policyholders aware of what is in their policies and what is not. It also makes it easier to tell when specific line items become over or undervalued as they depreciate and appreciate with age. Without this rule, valuing your shop contents at $90,000 can seem plenty high, and you might not think it is necessary to increase this value after purchasing a bigger item. Just throw the new band saw in the shop, and, voila! it's covered – or is it?

We do not want this question to come up on the day that disaster strikes. Should a fire destroy your shop, this would be the worst time to find out that the shop contents line in your policy will barely cover the little stuff, and the higher value equipment will have to be replaced out of pocket. This rule exists to prevent this kind of surprises. When you buy new equipment, do not just assume it is covered; text your local secretary and request that it be added to your policy so that you know it is. We want you to know what exactly is covered in your policy, so that we can all be confident that your coverage is adequate. We want to be able to see each piece of equipment listed in your policy with a clear description and an accurate value, especially on the day we review loss claims.

This rule does not prevent the enrollment of multiple, higher value items in the same line. Identical items can be still enrolled together, even if they individually exceed the $5,000 limit. To continue using the above examples, two, $15,000 ironworkers can share a line with a value of $30,000, or three compressors at $18,000. Where we see this method used most often is with granaries and livestock - 4 hopper bins at a value of $90,000 or 170 cows at $700,000.

Although this method of enrolling multiple items is acceptable, there are some things to consider before choosing to go this route. In the event of a loss, when this figure is most important, the value of the individual item is calculated by dividing the total line value by the number of units in that line item. So if one granary is lost from a line in which four granaries are enrolled for $90,000, the expected payout for that loss is $22,500. This will usually be fine for granaries.

Livestock can be another matter. For example, in some policies we will see ten bulls enrolled as one line item at, say, $75,000. If the policyholder is fine with receiving a maximum payout of $7,500 per animal in the event of a loss, then this is fine. But if in his mind, one bull in this herd is a premium animal that is worth twelve or fifteen thousand dollars, and at the lower end he has an aging bull worth a quarter of that, then a $7,500 payout per animal may not be ideal; from either MUAC's or the policyholder's perspective.

As a general rule, this should be resolved by defaulting to more itemization rather than less. If you have a herd of ten bulls of varying values, split them into multiple lines with the higher dollar animals together on their own line, and the lower value animals on another. If you have two horses valued at eight and twelve thousand dollars, put them in separate lines at their assessed value, rather than together at their combined value.

At the end of the day, we want the coverage you think you have, to be as similar as possible to the coverage that we actually provide. If there are discrepancies, these usually come up when a loss has been claimed and is being reviewed by the committee. When policies are not kept up to date, or coverage amounts and descriptions are poorly defined, the committee has to make a ruling about the size of payout for which the claimed loss is eligible. Sometimes, the payout amount is unavoidably disappointing, but hopefully by implementing this rule properly we can reduce the likelihood of this kind of disappointments.

That's it! If you made it this far, thanks for reading. I hope you found it informative.

1. Mennonite Union Aid Canada Rules & Regulations, p. 11. Download your copy here. ↩︎