A complete business property insurance plan is one of the smartest investments you can make in your business. It protects the costly, physical assets of your company such as the building, its contents and any outdoor fixtures such as signs and fencing. Savvy business owners know that a fire or severe windstorm can shut down a business for an extended period of time, often leading to a permanent closure. They make plans to protect their assets in the case of a disaster. If you have your business and property covered properly and purchase comprehensive business property coverage, you will have support and financial assistance to help you recover quickly. Unfortunately, many business owners, whom have been ill advised by their insurance agent, overlook certain coverages, thus not covering their property entirely, properly or comprehensively. We’d like to share with you five property coverages that many agents overlook for their property-owning clients.
- Mistake 1: Failing to adequately cover improvements and betterments, for tenants. Improvements and betterments, although made at the tenant’s expense, become part of the building. The improvements are included in the definition of “building” in the owner’s Commercial Property policy and also are included in the definition of “business personal property” in the tenant’s policy. Who insures? Because the improvements usually are attached to the property and increase the value of the building, it’s recommended that the owner increase it insurance to cover any such improvements.
- Mistake 2: Failing to take into consideration occupancy and vacancy issues with builder’s risk policies. Occupancy in whole or part can void a policy. When insuring buildings under construction, carriers may give an insured permission to occupy parts of the building as construction is completed, moving in floor by floor, with an endorsement and an additional premium. But this approval is usually only good for 90 days, and may need to be renewed as construction is completed. A related issue is the question of vacancy. If the building is less than 31% occupied for customary operations, it’s considered vacant. If tenants move out in the course of the year and the business property policy renews without the agent knowing if the property is currently fully occupied or not, the business owner may lose coverage on that property. Specifically, if a building is vacant for more than 60 days, the owner will lose coverage. In that case, the policy may not pay for any loss caused by vandalism or sprinkler leakage, for example, and other covered losses are reduced by 15%.
- Mistake 3: Failing to insure to 100% value and to request agreed value. A building worth $1 million could be subject to coinsurance of 80%, for example, leading to a limit of $800,000. What happens at the time of loss if the building has an actual value of $1.2 million because of improvements and additions? The building owner is out $200,000. We always suggest insuring properties at 100% value and requesting agreed value, which will suspend the coinsurance.
- Mistake 4: Allowing a tenant to insure a building. If the tenant is the named insured and the building owner is added an additional insured, the owner could be excluded for any loss if the tenant, its partners, members, officers or managers commits a dishonest act, such as arson. Such acts could leave the building owner with no coverage. It makes more sense for the building owner to carry the insurance and build it into the tenant’s rent.
- Mistake 5: Failing to add Building-Glass coverage. Generally, a tenant is responsible for any building glass breakage, but the tenant’s Commercial Property policy covering business property doesn’t include building items, like glass. Even though the owner insures the building, it’s important to consider adding a building glass endorsement to the tenant’s policy.
If you are unsure about your current coverage or have concerns about whether your property is covered properly, contact our office so we can work with you to make sure you have your property adequately insured. We would also love to help you review your current policy if you already have one in place through RSS. We will work with you to help lower your risk and design complete property insurance coverage to meet the needs of your business – hopefully while saving you money, too. We look forward to hearing from you!