Back to School, the Basics of Insuring your Investment Property

Insuring your Investment Property

As a commercial property owner, safeguarding your investment is paramount. Real estate insurance provides the essential coverage to protect your property from unforeseen risks businesses face, which can encompass property damage, liability, business interruption, and specialized coverages like equipment breakdown. The scope of real estate insurance is broader than most personal insurance because businesses often have more complex risks and exposures.

Whether you own a strip mall, office building or apartment building having the right insurance coverage can significantly improve the financial health of your investment.

General Liability Coverage

General liability provides a financial safety net against various risks arising from daily operations, making it crucial for commercial property owners. This type of insurance helps protect property owners from potential lawsuits and claims that could otherwise result in significant financial losses.

Bodily Injury

One of the primary coverages under general liability insurance is bodily injury. If a tenant, customer, or visitor sustains an injury on the property, this policy can cover medical expenses, legal fees, and any settlements or judgments arising from a lawsuit. This coverage is particularly important in high-traffic areas including parking lots!

Property Damage

Another essential aspect of general liability insurance is property damage coverage. If the actions of the property owner or their employees cause damage to someone else’s property, this can cover repair or replacement costs, which are vital for maintaining good relationships with neighboring businesses and tenants.

Personal and Advertising Injury

General liability insurance includes coverage for personal and advertising injury, which can protect property owners from claims of defamation, libel, slander, and copyright infringement that may occur in the course of advertising or business operations. Without proper coverage, these claims can be costly and damaging to a business’s reputation.

Legal Defense

Additionally, general liability insurance can cover legal defense costs. Even if a claim is unfounded, the legal expenses to defend against it can be substantial. General liability can help cover attorney fees, court costs, and other related expenses, protecting the property owner’s finances from being severely impacted.

Commercial Property Insurance

Commercial property is the cornerstone of real estate insurance and provides coverage for physical damage to buildings and structures caused by fire, vandalism, natural disasters, and other unforeseen disasters.

The COPE model, a framework the insurance industry uses to assess and underwrite property risks when determining the appropriate commercial property rates and risk that they are willing to accept. COPE addresses the construction, occupancy, protection when insuring commercial properties. The list below provides a closer look at each aspect of the COPE model and how your building impacts the type of commercial insurance appropriate for your needs.

Construction

A wood-frame structure responds differently to fire than a masonry building. Construction considers the materials and methods used to construct a building. Other factors include the age of the building, the quality of construction, the condition of the building, and recent electrical updates. These details influence structural susceptibility to damage from various perils like fire, wind, or earthquake.

Occupancy

Occupancy considers the type of activities conducted within the building. Different types of occupancy present varying levels of risk.

There are significantly different risks between an office with a few workers who may not even come into the workspace and an apartment building with multiple kitchens and little oversight of the tenants’ activities.

Protection

Protection pertains to the safety measures and systems in place to protect the property from damage. This includes fire protection systems, security systems, and proximity to emergency services. Adequate protection measures can significantly reduce the risk of severe damage.

Exposure

Exposure considers external property risks that are beyond the owner’s control. This can include factors like the property’s location and proximity to potential hazards such as neighboring buildings, natural disaster zones, and environmental risks.

Business Interruption Coverage

Business interruption insurance helps businesses recover lost income and manage expenses after a covered event. This insurance is particularly crucial for commercial real estate owners, such as those who own strip malls, apartment buildings or office buildings, as it ensures that they can continue to meet financial obligations even when their properties are temporarily unusable.

Business interruption coverage also compensates for lost rental income and helps property owners maintain cash flow while making repairs, especially when it temporarily displaces tenants. It’s essential for maintaining financial stability and ensuring that mortgage payments, utilities, salaries, and other fixed costs are covered during unexpected downtime.

According to FEMA, almost half of small businesses affected by a disaster never reopen after the disaster, and an additional 29% go out of business within two years of the disaster. Businesses with resumption plans are usually operational sooner than those without plans.

Having business interruption coverage in place plays a critical role in ensuring your investment is protected and can quickly rebound in the event of a major loss.

Equipment Breakdown Coverage

Equipment Breakdown coverage covers repairing or replacing essential equipment and systems, such as HVAC units, elevators, and electrical systems, that may break down due to mechanical or electrical failure. This coverage is particularly important for commercial properties where equipment functionality is critical to operations.

Flood Coverage

Standard real estate insurance policies typically do not cover flood damage. Obtaining flood coverage is vital for properties located in flood-prone areas where damages can be particularly devastating and costly to repair.

So, before you renew your policy or purchase an additional building contact the Trusted Choice Insurance Agents at Richey-Barrett to review your current and future insurance needs.

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