Businesses, especially smaller ones, too often overlook the need and security of commercial property insurance for their premises.
If you are a landlord of a commercial property, you should consider commercial property cover insurance. Commercial property insurance covers any commercial property. It protects the property against disasters such as fires, theft and natural tragedies. It also protects you from having to pay out claims under other circumstances like injuries or accidents that may occur on your property.
A commercial property/building is any building that is used for business purposes rather than residential purposes. Laws applicable to residential properties differ from those that govern commercial property, so each requires different types of insurance, and may also need to accommodate insurance for small businesses.
Who needs Commercial Property Insurance?
Commercial property insurance is not mandated by law. However, it is worth noting that a lot of mortgage providers require that you have building cover to make you eligible for loans. Companies that usually carry and benefit from Commercial Property Insurance are:
- Manufacturers
- Not-for-profit organisations
- Retailers
- Service-oriented businesses
Others include industrial units, offices, barns or steel structures.
If you own a commercial property, it would be worth your while having this commercial property insurance cover to protect you against the rebuild and repair costs. To qualify for a commercial property insurance policy, a contract must first be made. The property owner must have a formal rental or lease agreement in place with their tenant. They must establish themselves as the ‘landlord’ and the occupying business as the ‘tenant’.
Although, if the building you occupy is a rented property, building insurance is the landlord’s responsibility. It is still worth considering getting content insurance coverage to cover the costs of having to replace your equipment.
Several factors, such as occupancy and location determine the cost of property insurance. It is usually bundled together with other forms of insurance, such as commercial general liability insurance.
Commercial property insurance could be a major expense for a business. It usually provides the same kind of protection as property insurance for consumers. Yet, it allows businesses to deduct the costs of commercial property insurance premiums as expenses. Commercial property insurance usually does not cover losses that arise from damages caused by tenants in the property.
Commercial property insurance usually covers the following main categories:
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Buildings and content insurance
Bundled together, these provide adequate protection against risks like:
- Fires
- Subsidence
- Flooding
- Theft
- Burst pipes
- Legal costs
- Storms, etc
- Buildings Insurance
This covers the charges for rebuilding and rehabilitation if the building is damaged or destroyed. This cover gives the advantage of reducing costs to restoration rather than market value prices.
-
Content Insurance
This covers the expenses that stem from replacing assets and equipment lost to theft. With this cover, you should insure your assets against the cost price, and not the sales price, of the same articles. It is imperative to make sure your insurance covers you when you have more assets on your premises than usual.
When considering content insurance, there are two types of policies to consider. These are:
- Replacement as new
If a piece of equipment has been damaged beyond repair, this policy allows the article to be replaced with a new one.
- Indemnity policies
If a piece of equipment gets damaged through wear and tear, this policy takes it into account. However, this piece of equipment would be replaced according to its current value, and not the cost price.
Sometimes, it is possible to combine building and content insurance on one policy. However, this does not seem like a good idea if you are a commercial property landlord but do not own/run a business that operates from your property.
There is another insurance cover to consider, that is, Business Interruption Insurance.
Business Interruption Insurance affords an extra layer of protection when purchasing buildings and content insurance. It provides coverage in case damages incurred to your property or equipment hamper your ability to conduct business as usual. It includes cover for:
- Increased operating costs, like advertising and marketing fees
- A shortfall in pre-tax profits
What does commercial property insurance cover?
Liability for Injury or Damage
This covers personal injuries caused by the landlord’s negligence. The policy would cover the costs of defending or settling claims against the landlord.
Necessary Repairs
Commercial property insurance covers repair costs for damages to property. The policy covers rebuild or repair costs.
Loss of Rent
Loss of rent means the loss of all basic rent or other income from a building due to damage or destruction by any of the insured risks for a minimum period of up to three years having regard to potential increases in that income as a result of lettings, rent reviews or other matters which may occur.
Many business building insurance policies include cover for loss of rent. Although, this tends to apply to only rental income lost through what is known as an ‘insurable event’.
If you cannot rent out your commercial property because something has happened to it, making it difficult to rent out, your insurer would pay you out. If you lose out on rent because you are unable to find a business tenant, then you are unlikely to be able to make an insurance claim.
What Does Commercial Property Insurance not cover?
Most building insurance policies will not cover
- General wear and tear are bound to occur as equipment degrades over periods.
- Damages that result from acts of terrorism. Special insurers might offer this as an additional premium.
- Unoccupied properties. Unoccupied properties are at a higher risk of break-ins and vandalism among other crimes. Most insurers would not cover them for these reasons. Some insurers provide a grace period that provides coverage between when a property becomes vacant and when the owner has to switch to a vacant property insurance policy. However, this varies by provider.
Cost Of Building Insurance
The average cost of building insurance varies and depends on a slew of factors, such as the location and size of the property, the sort of business that it’s been used for, and what type of cover is required.
Another key factor that goes into consideration is the estimated rebuild cost of the property. The annual insurance premium for an expensive building would be higher than the average.
