Why wait until a claim occurs to scramble and review your commercial property insurance policy? One overlooked gap or error in your coverage could be very costly. Whether your policy is up for renewal, or you are in the process of purchasing a new policy, you should pay attention to the exclusions and limitations included in your coverage.
Here are 7 common pitfalls to avoid when securing property insurance:
1. Listing Proper Entities
If there are multiple entities, be sure to name all that have insurable interest in the covered property to avoid issues at the time of a claim.
2. Limits and Sub Limits
Never insure your property based on market value. Your building coverage limits should reflect the cost to rebuild or replace the structure to the same “like kind and quality”. How would the sub limits on your current property policy limit your overall recovery?
3. Valuations
At the time of loss, how will the insurance company determine the claim amount? Well, it all depends on how the policy was written. Does your policy provide Replacement Cost or Actual Cash Value (ACV)?
Replacement Cost offers the broadest coverage to replace or rebuild with same and like quality.
Actual Cash Value is determined by the cost to repair/rebuild minus the depreciation.
4. Inadequate Coverage for Property Under Construction or Renovation
Before purchase a Builder’s Risk policy that could be costly and subject to minimum earned premiums, speak with your broker to see if your commercial property insurance policy can cover the scope of the project. Some programs may allow you to endorse the policy to cover construction or renovation. Be sure to review any limitations, exclusions, or gaps in coverage with your broker before adding coverage.
5. Business Income Coverage
Your Commercial Property policy may include coverage for business interruption or business income loss due to property damage. Beware, however, there can be certain limitations(such as time or distance) that you should review with your broker. Don’t forget to consider additional costs and extra expenses incurred to keep business operating after a loss. It’s also critical to consider properties which you may be dependent on for your business.
6. Using Specific rather than Blanket Limits for Multiple Locations
When there are multiple locations on a policy, having a single blanket limit covering all buildings is a safety net in the event of inadequate limits at any one specific location.
7. Ordinance or Law
Keeping up with the new building codes and laws that regulate construction and repair of damaged buildings can be complicated. Make sure you’re policy includes coverage for Ordinance or Law. Without this coverage, if codes change (which they often do), you could be paying those extra expenses out of your pocket.
When it comes to protecting your business, avoiding pitfalls and mitigating risk is important to your company’s overall financial health.
The only way to avoid gaps in your coverage is to review your policies with your broker annually. Your business may change and so will your exposures.
Opinions expressed in this article are solely the author’s opinion, not intended to provide the reader with legal or any other professional advice. Should you need advice or opinion, consult with a qualified professional to address your specific needs.