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7 Things To Consider Before Buying Commercial Property Insurance

Commercial property insurance protects tangible assets owned by your business. While it is most frequently discussed in the context of buildings, it can also include the content of those buildings, such as inventory and equipment.

Why do you need this insurance? Your commercial property, whatever it may be, likely wasn’t cheap. It represents a large investment, or at least a significant portion of your net worth. If something happens to that property—whether it’s a natural disaster or man-made hazards like theft or arson—you are on the hook for any ensuing damage or loss of business. A policy tailored to your property and your needs will help you recover from losses that might otherwise sink your business (and possibly your personal finances).

But there isn’t a one-size-fits-all approach to commercial property insurance. The industry you’re in, as well as your building’s location (or locations) will impact how much you spend and what options are available to you. It’s critical to carefully consider the policy you choose to protect the building—this is as critical as investment or estate planning.

Below, we discuss the specific things to keep in mind before buying your own commercial property insurance. There are no wrong answers to these questions; the goal is to help you understand exactly what outcomes you might get if catastrophe strikes.

7 Things to Consider Before Buying Commercial Property Insurance

1. What Are Your Property’s Largest Risks?

A thorough risk assessment begins with your property’s location and any region-specific perils it might face.

Start with location-based considerations. What kind of natural phenomenon does your property need to withstand? If your building is in Florida, you need to consider the risks posed by hurricanes and tropical storms. If it’s in Dallas, your building may face hail damage and tornadoes. If your property is in Northern California, you must consider the risk of wildfires.

Then move to building-based considerations where you assess the property’s specific vulnerabilities. For example, how old is the building’s roof? Is the building wooden-framed? Does it have a sprinkler system? What about an alarm? If your building is filled with expensive items and equipment, but has no alarm, you’re at risk for theft.

Keep asking yourself these questions, narrowing down your building’s vulnerabilities and what risks you’ll want commercial property insurance to cover.

2. What Is Your Property’s Insurance Value?

Keep in mind that insurance does not cover the market value of your property—it covers what it would take to hire a contractor to build the structure from the ground up. That’s the basis of your property’s insurance value, so figure out what that would cost. (Remember that building costs have increased dramatically over the last three years.)

Do you also occupy the building? You should determine the maximum amount of inventory you will carry at any given time, as that will also need to be covered.

As you calculate these values, you may come across higher figures than you expect. We’ll go deeper into cheap insurance and how detrimental it can be in the next section, including the heavy underinsurance penalties.

3. Do You Want Cheap or Quality Insurance?

It's tempting for property owners to get many quotes while looking for the cheapest coverage available. The problem is the cheaper the policy, the more gaps and exclusions you must contend with if and when something finally happens.

You are free to select the cheapest plan you can find, but it will be on you to deal with the consequences of that cheap plan in the face of disaster. This can work out to a huge financial hit that may be difficult or impossible to recover from.

When searching for policies, reverse-engineer the outcome you want in any given situation and compare it to the quotes on the table. There also may be strategies you can employ to reach a more affordable premium. For example, you can combine commercial general liability and commercial property insurance into a commercial package policy (CPP) . A CPP lowers costs, broadens coverage, and simplifies the buying process.

4. Do You Need Earthquake and Flood Coverage?

Standard commercial property insurance policies exclude flood and earthquake coverage. Unfortunately, certain areas in the country desperately need this coverage. If your property is located in these regions, you will need to examine your policy closely. It’s very likely your policy does not cover these perils, though you will have an option to purchase additional coverage at a higher price.

If a strong earthquake rattles your property enough to do considerable damage to the building and its contents, will you be in a position to recover from those damages without the earthquake coverage? Look again at the figures you obtained in the first two questions. That’s the kind of financial difficulty you’ll be looking at. You will need to decide whether the risk is significant to justify the purchase.

5. Does Your Lender Require Any Specific Coverages?

Lenders can require a large spectrum of coverages and options. Some require flood; others demand general liability coverage; still others may want certain deductible ranges or agreed value. Make sure you completely understand what your lender needs from you before you purchase the insurance.

6. How Do You Want to Use Your Insurance?

What is your ideal insurance situation? Maybe you want a very small deductible and are willing to pay more for the ability to file smaller claims. Maybe you see insurance as more of a prevention against catastrophe and do not mind a larger deductible and minimal insurance involvement.

No matter what your personal view toward commercial property insurance happens to be, you need a clear understanding of how you intend to use it before you purchase it. If you don’t, you’re likely to be disappointed with how much you’re paying in premiums or the out-of-pocket costs associated with high deductibles and exclusions.

7. What Is Your Deductible Range?

Figure out what kind of deductible fits with your finances. Bear in mind you also need a way to pay it in the event of a claim. If, for example, you want catastrophic-only coverage that comes with a $100,000 deductible, you need to be able to pay that deductible before the rest of the plan kicks in. If you know you won’t be able to do that, then that particular coverage is not a good fit for your business.

Look at a range of policies with deductibles that you can conceivably afford. If your deductible range is $10,000-$25,000, for instance, review the various options and see which makes the most financial sense.

Get a Quote on Commercial Property Insurance

Commercial property insurance is one of the most important investments you’ll make in and for your business. It’s also protection against problems both natural and manmade. LandesBlosch has decades of experience in the commercial insurance realm, and we’ll put that experience to work for you. If you need help selecting a policy or building a plan around one, get a fast quote or contact us today.

Austin Landes, CIC

About The Author: Austin Landes, CIC

Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.

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