Risk mitigation is incredibly important to the bottom line of any commercial property owner/landlord. Renting out a commercial property exposes you to various risks that can put your property and your earnings in danger.
This is why people often turn to commercial landlord insurance. This is a specific insurance type to cover these types of losses. Commercial landlord insurance (CLI, or “Landlord Insurance”) aims to protect commercial rental properties. As such, it’s different to residential property insurance in many aspects.
In this entry, we’re going to explore the basics of this insurance type.
What Does It Cover?
Landlord policies typically include three areas of coverage: loss of rent, property owners’ liability, and buildings cover.
Loss of Rent
Every property type can be subject to catastrophic damage, which can render it completely unsafe to use. Entire buildings can become unusable and stay that way for several months, even several years. This leaves the landlord completely unable to generate any income from the property.
Commercial landlord insurance plans include coverage for loss of rent. This coverage helps you make up for the inability to collect the rent while your commercial property is unsafe to use (the indemnity period). Generally, these indemnity periods are for 12, 24, and 36 months. Naturally, the longer the indemnity period you opt for, the higher the premium. If the loss of rent goes beyond the agreed-upon period, your insurer stops being liable for compensation.
Property Owners’ Liability
As a landlord, commercial or residential, you are responsible for a wide spectrum of issues. For one, the safety of users, even third-party users, in the building is your responsibility. Even if the third-party users are in the presence of your tenants, you are still responsible. For example, if a third-party user suffers injuries/losses because you didn’t manage to meet the safety conditions on the premises, you are liable.
Property owners’ liability insurance helps with these unfortunate potential situations. The usual range for this type of liability is somewhere between £1 million to £10 million; However, if your building houses students, individual claims can reach c£20million (loss of future earnings for the brightest students, if catastrophically injured on your premises). Therefore, you’re looking at a custom level of insurance. Consult your insurance professional and come up with a perfect plan.
Buildings cover is often considered the cornerstone of commercial landlord insurance. Buildings cover relates to the rebuilding costs of a part or the entirety of a commercial property.
The worst-case scenario - and the heftiest premium- pertains to a complete rebuilding effort, as a result of a catastrophic-level event. You may not need (or want) this type of coverage. However, you have to consider where you live – and whether the property is mortgaged (lenders usually require full rebuild cover). If earthquakes, tornados, hurricanes, and various other natural disasters are common, the highest buildings cover option may not be a bad idea.
Additionally, keep in mind that commercial building insurance is not tied to the market value of your property, but to the exact rebuilding costs.
The three mentioned options are the basics of every commercial landlord insurance plan. You can customise the three areas and tailor them to your needs, but there are more options to consider.
The standard insurance policies don’t cover some damage types, such as mirrors, glass, and suchlike. You can always customise your insurance to include this type of damage.
Often, by default, intentional damage caused to your property isn’t included in the insurance plan. Keeps an eye on the exact wording regarding this insurance option.
The landlord’s contents insurance includes everything that is the landlord’s property within an insured building. This goes for loss and damage/destruction. Normal wear and tear, however, isn’t included here.
This option mostly pertains to a tenant’s refusal to vacate the property. These disputes often end up in court and can be costly. With legal expenses included in your commercial landlord insurance plan you won’t have to worry about that.
Properly Cover Your Commercial Property
As is the case with residential properties, you should take all the right steps towards securing your commercial property or properties. Make sure that your premium covers the three main aspects, and consider putting the extra options in writing. There are many customisation options when it comes to commercial property insurance.
Back to Basics
So, you’re now aware that buying commercial insurance policies is a much more involved process than insuring your own personal car, house etc.
However, the key concept most insurance buyers gloss over is that large claims are rare. Thus a low excess for every financial period can be a waste of money for a scenario that’s so unlikely that it can be financed without a low excess, typically from accumulated premium and IPT savings. It is this “back to basics” thinking which is at the heart of buying insurance holistically, educating buyers about how they can make better buying insurance decisions Safely. Insurance is designed to protect you from short-term volatility.
If you are in the commercial property business for the long-term and/or have a large portfolio, insuring every possible outcome is usually the most expensive option in the long-term. By re-evaluating your risk appetite and risk-financing time-frame, you can reduce premiums Substantially, Safely and Strategically.
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