Commercial Property Insurance

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What is Commercial Property Insurance?

Most people learn about insurance when they buy their first car, then marry and rent their first apartment or buy a home. Should they decide to start a business, they enter a whole new realm of insurance, much more complicated and for obvious reasons, expensive.

Commercial Property Insurance is exactly what the name describes: a hedge against the kind of problems one can run into when opening a business - whether it involves a flow of customers through stock-laden shelves, an office situation, or a manufacturing facility where employees are involved in strenuous or dangerous activities.

The nature of insurance required for each is appropriately different, but exponentially beyond the insurance required to cover one’s home.

For an individual looking to purchase a building that will be used for business, many factors come into the equation - from zoning principles to the types of trade processes that will take place in the building. Being knowledgeable of zone codes before leaping into the market is advisable.

What looks like a perfectly good fast food location might be prohibited by the neighborhood zoning rules or the individual buildings approved use. Your insurance agent will want to know the postal code nonetheless in order to provide an accurate quote for even simple coverage.

The basic point is the same as home insurance: what would it cost to replace or rebuild, as well as the amount necessary to replace equipment and fixtures. But the key to securing the right coverage is the insurance agent’s ability to anticipate and calculate the level of risk involved during the normal course of a business day.

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Anticipating and Estimating Risk

An office building filled with secretaries and managerial types, whose greatest physical danger resides in papercuts and mis-aimed staplers, will be much lower to cover than a manufacturing facility where fingers and eyes might be in constant jeopardy. Restaurants, particularly fast-food establishments, run a double risk of hot surfaces, deep fat fryers, and a constant flow of public who face all kinds of simple risks starting with slipping on a wet floor all the way up to choking on a big bite of a sandwich.

Statistically, the higher flow of traffic, the greater the risk. On the other hand, just as landlords can prevent problems by following scrupulous reference procedures - commercial practice procedures are of great interest to insurers, and of vital interest to the landlord.

Do prospective renters - business owners - have training plans in place to program against or minimize accidents? Is the layout of the building such that emergency exits, fire extinguishers, and other safety features are easily seen and accessed? These aspects may sound obvious, until it comes time to predict and anticipate exactly what might happen in any given situation.

Experienced insurance agents who have a broad range of business clients will be able to assist, but there is one important fact that all Commercial Property Landlords need to keep in mind: you are as liable as the proprietor of the business should an accident take place on the premises. Amenities such as parking facilities and exterior walkways that are public in nature require additional consideration.

Commercial Property Insurance Cover

Landlords of commercial properties may be called Nosey Parkers for investigating such aspects up front, but it’s worth the castigation if it saves litigation later. A business tenant that doesn’t take every law into consideration might be just as lax in other areas - a sure symptom of eventual tenant default.

Commercial Building policies normally include a formula for loss of rent. (Similar term, but different than loss of rent due to default). This loss, under the terms of the policy, refers to Peril - fire, flood, or explosion. Policies vary, but the norm runs up to 20 percent for up to a year. Coverage of greater duration requires a longer indemnity period, which will cost more but not nearly as much as footing the entire bill for down time yourself.

One final note that has risen its unfortunate head in today’s modern world is the potential for acts of terrorism . A building that might not normally be a target, might become one due to the nature of manufacturing or business that fills them. Cover for Terrorism is not normally part of standard Commercial Insurance, and will be an additional cost.

The bottom line for Commercial Property Insurance is much narrower than ordinary home insurance. Where a landlord of a three-flat building might have six or seven people to consider when arranging for appropriate insurance, the Commercial Landlord might be looking at a hundred or more people - not including the public. While greater usefulness of the building implies greater potential profit, the costs are similarly exponential.