Picture two commercial properties side-by-side in Florida. One property has commercial property insurance, while the other is not insured. Florida’s floods come and wash away both of their belongings and cause great wind damage to their roofs. In this scenario, the property owner without insurance would be forced to pay out of pocket for repairs. Meanwhile, the property owner with insurance would merely have to file an insurance claim for compensation.
Between the two of them, who’d you rather want to be? We bet your answer is the owner with the commercial property insurance. In this article, we take a look at what commercial property insurance is, why it’s so important, and who pays for it.
What Does Commercial Property Insurance Cover?
Commercial property insurance is a type of insurance that protects commercial properties from specific perils such as fire, theft, and natural phenomena. It’s commonly carried by businesses such as manufacturers, retailers, and more. It mainly covers damage due to loss and is designed to get a business back on its feet after it suffers from a peril.
By far, one of the most common commercial property insurance policies is the business owner’s policy (BOP). Made for owners of small businesses, the BOP protects the property and its contents, as well as any exterior fixtures.
Generally, commercial property insurance does not come with coverage for offsite property, such as items stored elsewhere. It only covers the property itself and its contents. In addition, most come with replacement-cost coverage – this means that when a commercial property is lost, stolen, etc., the insurer will cover the costs of repairs and replacements.
Is your property in a flood-prone area? Florida is known for its floods, so if your property is in the Sunshine State, note that the standard insurance policy may not protect you from floods. Properties in flood-prone areas are considered too risky from the insurer’s point of view. In that case, you may have to purchase an additional insurance policy.
Why Do You Need Commercial Property Insurance?
This shouldn’t even be asked, but in case you’re hesitant to buy commercial property insurance, we’ve broken down a few reasons why it’s a must:
1. Protects You From Financial Loss
The single most important reason for purchasing commercial property insurance is that it shields you from significant financial losses. Your policy can prevent you from footing the bill for repairs or replacements in case of catastrophes.
2. Enables You to Bounce Back
Unexpected events can throw you off course. Commercial property insurance can keep your losses to a minimum in case you must temporarily cease operations. You can obtain business interruption coverage to cover the cost of lost revenue due to a peril.
3. Gives You Peace of Mind
It can be stressful to constantly wonder if your property is safe from theft, vandalism, etc. With commercial property insurance, you can rest easy, knowing that whatever happens, your building will be protected.
How to Choose the Amount of Coverage
The overall value of your assets is the main determinant of how much you should pay for commercial property insurance. That’s why you should create a list of all your onsite assets – in that way, you’ll know exactly what you’ll have to replace or repair in the event of a peril. An understanding of your assets can guide you in figuring out the kind of coverage you need.
You’ll have to choose between two main types of commercial property insurance policies: actual cash value and replacement cost value. In the actual cash value (ACV) policy, you’ll receive the cost to replace the property considering depreciation. In other words, it considers the current value of the item (this means it may now be worth less than what you paid for it). Meanwhile, in the replacement cost value (RCV) policy, you’ll receive the full replacement costs without considering depreciation.
ACV has lower premiums, but you will be compensated less when you file a claim. This means you’ll have to take out money from your own account. RCV costs more but you’ll also be reimbursed more.
What Factors Affect Commercial Property Insurance?
Several factors are considered when calculating your insurance premiums, such as:
Location. Owners of properties in areas that are prone to natural disasters or perils typically pay more since their situation is riskier. For example, if your commercial property is in an area with poor fire protection systems, expect your insurance to cost more.
Construction. Properties made of combustible materials tend to come with steep premiums. If you’re considering renovations, it’s a good idea to consult a commercial property management company to avoid using materials that might raise a red flag with your insurance company.
Occupancy. Who are your tenants? If you own an office building, your building would be considered less risky than, say, a car repair shop. That being said, you should be careful who you rent to if you want to maintain low insurance costs.
Fire protection. If your property is far from a fire hydrant or if your business doesn’t have a fire protection system (such as sprinklers and fire alarms), be prepared to pay more. To keep your premium low, make sure to check if your fire alarms are in place and if they’re fully functional. A commercial property management company can handle this when they conduct routine inspections.
Who Pays for Commercial Building Property Insurance?
As the property owner, you are responsible for paying for the insurance on your commercial property. However, tenants must be made aware that your insurance policy does not cover their property – it only covers the property that you own. In most cases, tenants must obtain their own insurance policy to cover their inventory and their portion of the property. While you don’t have to require your tenant to be insured, it would be in your (and their) best interests to obtain insurance. You can add a clause to your rental contract, stating that tenants must purchase commercial property insurance. A property management company with an in-house team of lawyers can help you with this.
Protect Your Investment With a Commercial Property Management Company
Even if you have commercial property insurance, that doesn’t mean it’s fine if your property is damaged due to a peril. Keep in mind that if you file too many insurance claims, your insurer may not renew your policy or your rates may rise. It would be better to avoid claims in the first place. One way to do this is by developing a preventive maintenance plan.
At Luxury Property Care, we work with commercial property owners to create a maintenance plan that not only protects their assets but also preserves the value of their investments. If you need a partner in commercial property care, contact us at (561) 944 – 2992 or fill out our contact form today.