Commercial Building Insurance

Insuring apartments or commercial buildings can be expensive, however, there are some steps you can take to help reduce the costs.

• • • Increase your deductible – The difference in rates between various deductible levels is a percentage. For example, there may be a 10% premium reduction between a $1,000 and a $5,000 deductible. If your building premium is $30,000 with a $1,000 deductible, the revised premium at $5,000 would be $27,000, saving you $3,000 annually. Selecting the right deductible is based on your risk tolerance, your financial ability to pay out of pocket as needed, and the potential savings you can achieve at different deductible levels.
    • Apply for “credits” – Most insurance companies have the ability to apply “credits” (discounts) to your policy for items that help reduce losses. Credits may be available if you have interior sprinklers, central station alarms, cameras, or gated entries. Some insurance companies will apply credits if you use a professional property manager or have lengthy experience as a landlord. The longer history you can document without claims can also lower your premium.
    • Leverage multi-policy or multi-location discounts – Some companies will provide an additional discount if you have an additional policy with them. For example, if you have employees, placing your worker’s compensation with the same insurance company as your building can lower your premium. Similarly, if you have multiple buildings to insure, keeping them with one carrier can result in lower premiums.
    • Get quotes from other companies – If you are with an agent that can only offer one insurance company, it makes sense to check with a broker that works with multiple companies to ensure the rates you have are competitive. However, we also recommend that you compare the coverages as well, like what we offer with our side-by-side comparison to ensure that you are making an informed choice.

Coinsurance is a penalty that can be applied by an insurance company if a building is not insured to its full replacement value. If your policy says it has a 90 percent coinsurance clause, that means your building must be insured for at least 90 percent of the actual replacement value. If the replacement value of your building is $1,000,000, it should be insured for that value to protect you against a total loss. However, if the building is insured for less than $900,000 (90 percent of $1,000,000), then the coinsurance penalty will apply to a property loss. This penalty will apply, even if the loss is less than the actual building coverage you have. Consider the example below:

• The replacement value of your building is $1,000,000
• You have only insured it for $750,000
• The coinsurance is 90 percent
• You have a $200,000 loss to your building

While you would expect to get the $200,000 for the claim (since you had $750,000), that would not be the case as the coinsurance penalty would be applied.

Since the building was insured for only $750,000 versus the minimum required $900,000 (due to the 90 percent coinsurance clause), you were insured for 83.3% of the minimum required ($750,000 divided by $900,000). As a result, that 83.3% will be used to reduce the $200,000 claim amount. The amount you would receive would be $200,000 x 83.3% = $166,000, leaving you with a gap of $34,000.

• Workers Compensation – If you have any employees (even one part-time employee) the law requires you to carry Workers Compensation. This protects both you and the employee including paying the employee while injured, in the event they are unable to work.

• Cyber Liability – If your business maintains private personal or employee information, you are a target for hackers. As a building owner, you likely will have confidential information about your employees or tenants.  If this information is compromised, the legal requirements and fines are severe.  The National Cyber Security Alliance recently released statistics that show 20% of small businesses experience such an attack every year, and that 60% of these businesses were forced to close within 6 months of being   This coverage pays the various costs associated with this type of loss.

• Employment Practices Liability Insurance (EPLI) – Per the Insurance Information Institute, the number of lawsuits filed by employees against their employers has been rising. EPLI provides protection against many kinds of these suits. The most common claims are for:

• • Sexual harassment
  • Discrimination
  • Wrongful termination
  • Retaliation

  This coverage pays for legal representation, and if necessary, will pay the claim on your behalf.  In some cases, policies will include third party discrimination which may be helpful if someone sues you for a violation of the Americans with Disability Act.

  We can help you determine which coverages your business will need.

Owning an apartment or commercial building leaves you open to large liability losses. This could be a slip and fall or something more tragic causing severe injuries. As an example, one of our apartment building clients had a situation where bees attacked a little girl as she climbed a tree near a hive. Although the client was working to remove the hive and had a sign not to climb the tree, the girl was injured and the final claim settlement was over $3,000,000. He had a $5,000,000 umbrella that covered the claim. A typical building policy comes with $1,000,000 liability for any one occurrence. However, if someone is injured in an apartment or commercial building, it is sometimes seen as an “opportunity to win the lottery”. In cases with a severe injury, or in the example above, the $1,000,000 liability limit is not sufficient.

An umbrella policy provides an extra layer of liability coverage that goes on top of the existing $1,000,000 that your building policy provides. For example, if you had the building policy with a $1,000,000 liability and added a $1,000,000 umbrella, you would have $2,000,000 for a single occurrence. Umbrella policies are sold in increments of $1,000,000 and most companies offer up to $10,000,000. A single umbrella can also span over multiple property locations if they are owned by the same entity and insured together under one policy.

As you build a portfolio of buildings or have other assets to protect, an umbrella is a low-cost solution to ensure that you have the liability coverage you need.