5 Tips for Choosing a Commercial Property Insurance Plan
The macro-economic picture of the United States now looks stronger following the Great Recession that began in 2008. And, as a part of this economic recovery, demand for construction services has begun to grow and commercial property purchases have increased. According to a report on the commercial real estate industry by real estate firm CB Richard Ellis in October 2016, the American industrial market has expanded for 26 consecutive quarters. Three cheers for the recovery!
If you are one of the many new or existing owners of commercial property in America, now may be a good time to consider purchasing commercial property insurance to protect yourself in the event of a catastrophic event occurring on your property.
Property insurance has an interesting history. The industry formed in 1666 after the Great Fire of London destroyed 13,000 homes and businesses. As you might imagine, in the many fires since, the majority of insured commercial property owners have fared far better than those whose catastrophes pre-dated the Great Fire of London.
Here are five tips to help you choose a commercial property insurance plan that suits your needs:
1. Don’t go with the first quote you see. It is possible to be sidetracked by the first insurance plan you are offered. If you shop around, however, there is a good chance that you will discover a more worthy insurance package. Why? There are many variables to consider. They range from overall price to what will and will not be covered; and, while some firms have stellar reputations, other providers are known for how difficult they make it to get a payout when needed. So it pays to do your research, which leads us to our second tip.
2. Know your terminology. While “insurance speak” may seem daunting or complex at first, it really isn’t hard to understand once you master a few key definitions. Take some time to brief yourself on key terms the industry uses. Know the difference, for instance, between terms like excess, premiums, deductibles and more. Investopedia is an excellent free resource where you can brush up on insurance lingo.
3. Watch out for unexpected costs. Some insurers may not explain all the costs and variables upfront. For example, you could end up with a high-deductible insurance plan, meaning that before a payout is made, you will have to spend a significant amount of out-of-pocket money before you can make your insurance claim. Let’s say a major fire seriously damages – even destroys – one of your warehouses. And let’s assume your commercial property insurance covers up to $2 million in repairs, but has a $200,000 deductible. This means you must cover the first $200,000 of costs to repair your property, before your insurance company pays anything. While deductibles are certainly a normal feature of property insurance policies, their amounts can vary greatly from policy to policy.
4. Understand the tax implications. You can save a significant amount of money on your taxes by purchasing insurance, as it is tax deductible. When planning your financial models for your commercial property business, be sure to factor in the insurance costs as a write-off.
5. Consider an insurance bundle. There are many different types of protections offered by insurance companies, including flood insurance, tornado insurance, fire insurance and many other types of coverage. These can be purchased individually; however, if you bundle your insurance coverages, there is a strong possibility that you will not only save money but you may also get better protection for your commercial property.
The real estate market is quickly changing. As Deloitte reports, technological advances paired with recent societal changes (e.g. the growth of the sharing economy, including the meteoric rise of Uber and Lyft) can quickly alter which real estate locations are desirable.1These changes, as well as anticipated fixes to American infrastructure, present a wealth of opportunities for real estate investors.
Making commercial property investments that take into account ever-present technological changes is smart. Planning for the future, you might even make a pretty penny with the right commercial property. Just make sure it doesn’t go up in smoke before you adequately insure it.
1. Deloitte. (2017).Commercial Real Estate Outlook 2017. Retrieved from Deloitte website:https://www2.deloitte.com/us/en/pages/real-estate/articles/commercial-real-estate-industry-outlook.html
*Originally Posted: Hartford Small Biz Ahead By Stephen Robert Morse
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