Understand Your Commercial Property Insurance to Avoid Surprises

Damage to commercial properties can be financially devastating to business owners. High-priced buildings often require expensive repairs. In addition, building damage can cripple property values. Owners typically address these risks by buying property insurance.

However, insurance buyers may not have a good understanding of their plan and what it actually covers. This often results in unwanted surprises when a disaster occurs.

Take earthquake insurance for example. If an earthquake destroys a $500,000 building and the owners have an insurance policy with a 15% deductible, the owner will need to pay the first $75,000 in repairs. However, if the earthquake damage falls below $75,000 (15% of the building’s value), owners may be surprised when they have to cover the entire amount.

In addition, insurance agencies and owners may estimate the costs of repairs differently. After performing their own calculations, an insurance provider may expect to pay $150,000 to repair damages. However, the true costs to the owner may be closer to $200,000. The owner, therefore, may have to take on a surprise expense.

Having spent several decades in commercial real estate, I’ve heard numerous horror stories about insurance-related surprises. The worst time to learn about your insurance is when disaster strikes. Taking the time to understand your property’s insurance plan can prevent problems before they occur.

To gain a better understanding of their plan, owners need to first identify their building’s greatest risks (fires, floods, earthquakes, etc.). They should then meet with the insurance company’s claims department and discuss potential scenarios. Owners should ask questions like, “How much would I be required to pay out of pocket in this situation?” and “Are there any situations where I’d be required to pay more than my deductible to complete the total cost of the repairs?”

Meeting with a claims department may reveal critical information about the quality of one’s insurance. For example, owners may learn that their coverage is insufficient or does not reflect the risks facing their building. They may also discover that their provider has incorrect information about their building’s value or risks. Knowing this information beforehand can prevent a number of potential conflicts and reduce financial losses.

The Mid-Valley has many qualified insurance professionals. Be sure to choose someone with a good reputation who is active in the community and in their industry association.