Properly Insuring Commercial Property
By: Mary Thompson, Capstone President, February 23, 2015
Property insurance is one of the first types of insurance a business or property owner needs to have in place. Property insurance protects a business’s physical property against loss or loss of its income-producing abilities. The basic commercial property insurance policy protects a business’s investment in the building itself. Additional coverage is needed to protect, fixtures, furniture, office equipment, inventory and the supplies that are stored either at the business location or off-site. Even if a business doesn’t own the building they do business in the business still needs to insure the contents.
Business Property Insurance for Property Owners
Owning commercial property is much like owning a home. There are requirements to insure the property by the banks holding the loan or to simply protect the owner’s asset. Many commercial properties require a large investment of capital that is essential to protect.
To help determine the amount of property insurance needed, a commercial property owner must first know the lender’s limits. If a bank lender has given a loan on the property they will require that a certain level of insurance is in place within the loan agreement. If the requirement is not met the lender has the right to put in place its own insurance usually at a much higher rate than in the standard market. Most banks will only require that the property is insured to the amount of the loan, which is usually not enough in the case of total loss. It is a common misconception that a building only needs to be insured to the amount required by a bank holding a loan, but the property has more value then just the loan amount in most cases.
Every piece of property has two values, first is the amount it was purchased for and second is the cost to replace it if lost to fire, theft or other circumstances. So if the cost to replace the property is more then required by the bank, the owner is at risk for great loss. The solution to this is to insure the property to the replacement value instead of just the required limit set forth by the bank.
If a property does not have a loan and is owned out right by a business, or individual, it should still be insured to the amount it would cost to replace the building.
Business Property Insurance for Renters.
Although it may not be the renting businesses responsibility to maintain coverage for the building they still need to insure the equipment, improvements and supplies that the business has invested in. It is important to note that the commercial property insurance policy held by the building owner will not cover the tenant’s business’s property. Businesses renting space should ALWAYS have their own commercial renter’s policy in place. Having a commercial renter’s policy in place will protect the contents that belong to the tenant. Depending on the lease agreement the owner may even require that the tenant has coverage in place.
It is always smart to reevaluate a businesses property worth on an annual basis to be sure there isn’t a new property that requires more coverage. A commercial insurance agent can help a new or existing business establish proper commercial property coverage. Having an educated Insurance consultant is always helpful to businesses.
