Commercial Insurance is a risk transfer vehicle used by business owners, real estate investors and lenders to protect against potential economic loss. Coverage is divided into two categories; Property, your property, or Liability, damage to others for which you are legally responsible.

For real estate investors, the cost of insurance is an operating expense similar to property management or property taxes, that is included when calculating the net operating income.
Due to the dollars involved in business, commercial insurance is a necessity to protect you from loss.

Landlord insurance is a tailored package with specific property and liability coverages landlords require. The type of tenant occupying the property, multifamily, retail, office, warehouse, etc. will determine the coverage needed and offered by the carrier.

Apartment insurance is for owners of multifamily risk properties. For qualifying properties, most insurance companies offer a Business Owner Policy, or BOP. A BOP combines property insurance and general liability into one apartment insurance policy.

The BOP provides automatic coverage for Business Income or Loss of Rents for 12 months actual loss. Most business owner policies are written without a coinsurance penalty.

The basic BOP provides standard coverage, however each individual carrier works to differentiate itself by offering additional coverages and limits. These unique coverages should be evaluated when comparing different insurance company options.

Insurance is sold through two channels of distribution; direct writers and independent agents. Direct writers represent one company and focus on working with individuals for their personal insurance needs; home and auto. Independent agents represent multiple carriers to protect business entities from loss.

The 2016 -2017 Independent Insurance Agents & Brokers of America Market Share Reports that 84% of all business insurance was written through independent agents.

Landlords with a few rental homes can likely find the coverage they need with their local direct writer company agent. As your portfolio grows, it becomes more complicated. At this point, an Independent Insurance Agent or Broker is more likely to have tailored solutions offered through specialty programs to meet your needs.

An experienced independent insurance agent will have the knowledge and relationships with multiple insurance companies to provide you with a coverage solution for your portfolio.

Risk management is the process of identifying potential risk to your business that can cause damage or harm to you or your business. Then taking the appropriate step to eliminate, minimize or transfer the risk. There are three basic questions for a real estate investor to ask when you identify a risk:

1) Can you avoid the risk?
2) Can you minimize the risk?
3) Can you transfer the risk?

When you are left with transferring the risk, that’s when insurance becomes an option. Insurance is a contract that transfers risk to the insurance company in exchange for your premium dollars.

Building insurance covers the identified structure. To insure the building properly, it is recommended that you start with a replacement cost estimate. This calculation takes into consideration the material and labor needed to build your building back for how it is used today.

A common mistake made by insurance buyers is to ignore the replacement cost and instead insure for the purchase price. The purchase price reflects the market price; supply and demand for your property. This does not accurately reflect the cost to rebuild your buildings, which is the cornerstone for a building insurance policy. You must insure to an appropriate value to avoid any coinsurance penalties when settling a claim.

Property and Liability or Property and Casualty are often recognized as commercial insurance. They are two different lines of coverage. The distinction between commercial insurance is: Property is a first party coverage and Liability, General Liability is a third party coverage.

Property insurance: This includes your property; Buildings, Contents or Business Personal Property, and Business Income or Loss of Rents. If a covered cause of loss damages your property, during the policy period, your policy will provide the money needed to repair or replace your damaged property, subject to conditions, exclusions and deductibles.

Liability insurance: This provides the funds needed to defend you from lawsuits and pay for damages to others for losses you are deemed responsible for. General Liability is segmented into premises liability and completed operations..