Commercial real estate is a large investment. When thinking about the insurance plan, there are some things to consider for proper coverage. Some coverages may seem obvious. However, there may also be hidden coverage items that need to be discussed. Let’s take a look at things to consider!
First, let’s review commercial real estate insurance in general.
Commercial Real Estate Insurance
There are all types of commercial real estate. They range from single family dwellings used for rentals all the way up to 400,000+ square foot warehousing facilities with rebuild costs in excess of $25,000,000 (yes, $25 Million!). While these two examples are very different, there are actually still some similarities. The clearest similarity is the need to insure the structure itself, which we will review now.
Simple right? Not so fast! Make sure your insurance value on the building lines up with the proper replacement cost requirement set by the insurance provider. If you are undervaluing the building insurance, you could face large coinsurance penalties. In the event of a claim, this could cost yourself or your organization thousands of dollars. It is important to know the difference in a policy that has an 80%, 90%, 100%, or no coinsurance clause. Additionally, the actual coverage could vary greatly between each of these plan. It is wise to deal with an independent agent that understands the scale of your operation and also has the correct tools to properly value your real-estate holdings.
Secondly, it is important to consider the liability you face as a commercial real-estate owner.
- Are you a landlord of a habitational property that houses hundreds of people?
- Does your structure occupy a manufacturing facility that produces various types of widgets?
The liability can vary greatly depending on the occupants of the building. Discuss your individual exposure with a trusted independent agent!
- Do you own commercial real estate and own the operation that is occupying the space?
That is a totally different scenario and requires property general liability coverages.
Basically, regardless of the exposure, you need to properly cover it! In the event of any potential lawsuits, you want these to be defended and paid by your commercial insurance policy.
Thirdly, how will you operate if something physically happens to your commercial real estate?
Loss of Income
Have you discussed with your agent what would happen if you lost your monthly rent revenue due to a covered peril on the policy? What would happen to your overall financial situation if you lost 12-24 months of revenue (in the form of rent) while you rebuilt the structure? Check your plan and make sure it factors in the proper limits for loss of business income! This will help keep a stabilized financial plan if a claim occurs.
Moreover, do you fully understand your commercial lease?
Understanding Your Commercial Lease
How is your commercial lease written? Is it a triple net lease, absolute lease, or a modified gross lease? Each lease option can have different clauses, or expectations set for the owner or the tenant regarding insurance. The insurance requirements should be clearly spelled out in the lease and should be followed exactly how they are written in the lease contract. Contact a lawyer for legal advice regarding how they are written and interpreted. Never sign a lease without a full understanding of what is expected of you!
In conclusion, there are numerous things you need to think about as a commercial real estate owner. In addition to the items above, you also need to think about exposure to flooding, earthquakes, water backups, equipment breakdowns or tornadoes. Talk with an insurance professional about how to properly protect one of your largest investments! It does not matter if you own the real estate and lease it to another operation, or you own both the property and the operation. We can help!
We’re glad you found us! We have access to over 30 insurance carriers that can help find the best solution for you! We’d love to help your bottom line and transfer your risk appropriately.