What to Know About Insurance Coverage for Commercial Real Estate

Focusing only on the final costs for the insurance premium or the limits of insured items misses valuable and often overlooked details that could cost you money. Commercial property insurance coverage extends past the large items and into the necessary details to cover all potential risks and liabilities for the property owner.

Coinsurance and Deductibles

Some policies require coinsurance clauses that penalize items not fully valued in the original policy. Valuing items to their full replacement cost can save you money down the line. Most policies require a deductible prior to paying for items, but that deductible could be different depending on the disaster such as:

 

  • Business Interruption
  • Earthquake
  • Per-Unit Deductible (i.e. apartments or condo buildings)
  • “All Peril” or typical causes of loss like water damage or fire
  • Named Storm/Wind/Hurricane/Hail
  • Equipment Breakdown
  • Flood

Valuation and Limits

Not all policies automatically cover full replacement if disaster strikes. Most only cover to limits predetermined at the time of coverage. Valuation methods are either the actual cash value (ACV) or replacement cost. ACV factors in depreciation for the property’s age while replacement cost covers the cost of new materials.

Don’t assume things are automatically included in the policy because if they aren’t, your company is put at risk. Commercial property insurance coverage should be tailored by a professional to ensure all items are covered.

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