Whether you rent your commercial property to tenants (which could include rental homes and apartment units, office spaces or retail outlets in strip malls) or you operate a business out of the building, you want to protect your assets and company should disaster strike. You have invested a lot of time and finances in growing your business and you need commercial real estate insurance that can help you weather any storm – natural or man-made.
According to the National Association of Realtors, commercial real estate in 2015 included more than $29.3 billion in industrial property, $14.2 billion in office property and just over $5 billion in retail property. How much is your property worth and what can be done to protect against any losses? Whether your business involves one of these industries, or you dabble in all of them in your commercial real estate holdings, you need the right insurance to guard against your risks.
Types of Commercial Real Estate Insurance
The two most common types of commercial real estate insurance are commercial property insurance and general liability insurance. As the name suggests, commercial property insurance covers your buildings and equipment for damage caused by extreme weather events, fire and some crimes such as vandalism. A general liability insurance policy protects your commercial real estate from a lawsuit should a third party experience injury or property damage while on your premises.
The policies you need and the premiums you pay depend on the type of commercial real estate you own and the type of business(es) you operate on the property.
What Is Covered Under My Commercial Real Estate Policy?
Most damage to your property caused by extreme weather events (excluding floods and earthquakes) is covered by a commercial real estate property insurance policy.
Many businesses are vulnerable to losses from crime. According to the FBI, arson cost commercial real estate owners in the industrial and manufacturing sectors an average of $168,000 per incident in 2014. Other commercial real estate owners can expect damages due to arson to cost an average of $57,000.
Typical commercial real estate property insurance policies exclude losses of money and securities due to any circumstance and often do not insure inventory, equipment and other types of property against theft. These loss exposures are covered by crime insurance. Coverage for crime losses, whether by outsiders or insiders, may be included in a package policy, or the commercial real estate owner may purchase any one of a number of separate policy configurations to protect against these losses.
Here are the 10 costliest commercial real estate insurance claims:
- Theft and burglary
- Water and freezing damage
- Wind and hail damage
- Customer slip and fall
- Customer injury and damage
A commercial real estate insurance policy that includes property and general liability coverage will help ensure that most of these costs do not affect your bottom line. Property insurance can help you repair or replace your damaged buildings; liability coverage can help pay for your legal defense and any settlements should you face a lawsuit.
Which Commercial Real Estate Insurance is Best for My Business?
The coverage you need and the options you choose depend heavily on the type of commercial real estate you own.
Businesses operating out of home offices should also have commercial real estate insurance, as homeowners insurance typically does not cover business losses. Most of America’s 11 million home-based businesses are vulnerable to significant financial losses because they do not have the proper business insurance coverage, according to a survey by the Independent Insurance Agents & Brokers of America.
Smaller and mid-size companies often purchase a commercial real estate package policy known as a business owners policy (BOP). Commercial real estate coverage in a BOP includes property insurance for buildings and contents owned by the company and liability protection to cover a company’s legal responsibility for the harm it may cause to others.
Larger companies might purchase a commercial real estate insurance package policy or customize their policies to meet the special risks they face. If you own several types of commercial real estate, any number of which may become vacant from time to time, you are exposed to risks that those properties at full occupancy do not face. According to IHS Global Insight, the U.S. vacancy rate and forecast for commercial property in 2015 was:
- Apartment, 3.1%
- Retail, 8.1%
- Industrial, 8.9%
- Office, 9.7%
Vacant commercial real estate is at higher risk of vandalism and other crimes. Damages to vacant properties can also be worse following a storm or fire, as no one was immediately available to assess the situation. You may wish to purchase additional riders to your commercial real estate insurance or increase your coverage limits to adequately insure vacant properties.
According to Reed Construction Data, commercial real estate owners spent more than $6 billion constructing new office properties in 2015, while they spent a little more than $2 billion on new warehouse construction. What the property is used for makes a difference: An owner who rents office space has to carry more commercial real estate insurance than one who operates a parking garage.
The value of your commercial real estate is also a determining factor in the insurance coverage you choose. The U.S. Census Bureau tracked the value of new commercial construction and found the following was spent each year:
- 2003, $61.53 billion
- 2005, $70.24 billion
- 2007, $89.68 billion
- 2009, $54.07 billion
- 2011, $43.37 billion
These numbers represent not only years when more commercial real estate was built, but also the cost of labor and materials at the time of construction. The amount of commercial real estate insurance you need to cover property damage depends on the year when you bought or built your property and the current cost to replace or rebuild.
A retail building faces far different risks from third-party lawsuits than a manufacturing plant that is not open to the public. Therefore, the amount of liability coverage you need in your commercial real estate insurance can vary.
No two businesses are exactly alike. Your commercial real estate needs may differ significantly from those of another business owner. It’s important to work with a qualified insurance agent to determine your individual needs.
Where Can I Find Commercial Real Estate Insurance?
As a successful business owner, you have learned the benefits of task delegation. Just as you wouldn’t attempt to do any major renovations or expansions to your property yourself (you’d hire a contractor), you do not want to attempt to navigate commercial real estate insurance alone. You want the expertise of an independent insurance agent. The knowledgeable and independent insurance agents with Trusted Choice® are experienced in finding the right commercial real estate policy for business owners of all sizes. Trusted Choice agents can help you identify your coverage needs, asses any risks your particular properties may face, and give you a number of quotes from a variety of commercial real estate insurance companies. Contact a Trusted Choice agent today to find out how you can obtain the best commercial real estate insurance at the most competitive rates.