Commercial property insurance can protect your building and its assets from unexpected losses. With this coverage, you have peace of mind knowing if disaster strikes, your policy can help cushion the blow.
As with any insurance coverage, the cost is a chief concern. How much do different policies cost, and how does that impact the coverage they provide?
This article discusses the costs associated with commercial property insurance. You’ll learn everything you need to know to make an informed decision about the type and amount of coverage right for your business.
Also covered in this guide are the top carriers for commercial insurance and where to find the best commercial property insurance policy options for your needs.
Commercial Property Insurance Coverage Basics
Regardless of how unique your commercial property is, from its location and size to construction materials, there are basic levels of coverage every landlord or property manager must have. A basic policy should protect:
Property structure: A property's primary and secondary structures can incur significant financial loss when damaged. Any commercial property insurance coverage needs a building policy protecting these structures from several perils, like fire, explosions, and vandalism.
Landlord belongings: Coverage for the contents within your property is essential if you provide these items to service the building. Landlord belongings most commonly covered include furniture and fixtures, appliances, carpets, and other items used to maintain the property.
Loss of income: When your rental property is rendered uninhabitable due to damages caused by a covered risk, the loss of income policy will reimburse you for the lost rental income you would have earned from tenants.
How Much Does Commercial Property Insurance Cost?
The cost of commercial property insurance depends on a range of factors, such as the size and location of the property, any unique risks associated with it, and the amount of coverage you need.
According to a recent article in Forbes, commercial property insurance costs an average of $756 annually or approximately $63 per month. However, the amount of coverage you purchase is typically based on the value of your assets and inventory (for business owners).
Since insurance companies offer different pricing structures, compare plans to get the best deal. Generally, insurance premiums are calculated using a combination of factors, including building costs, replacement values, and projected income. You can also tailor your policy by choosing additional coverage that caters to your specific needs.
Ultimately, working with an experienced insurance broker to find the right plan for your business is key to getting adequate coverage at an affordable price.
Factors That Affect the Cost of Commercial Property Insurance
Every property is distinctive, so insurance rates will vary significantly between commercial properties, even if they share the same zip code.
Your property's features play a significant role in determining your premiums. Learning what features affect your commercial property insurance rates can help you lower and manage your payments more effectively.
Let's look at the most common factors insurers consider when pricing premiums.
Location is one of the most influential factors in property insurance pricing. Even the tiniest details about an area can drive your insurance to the higher or lower end of the pricing spectrum.
For starters, carriers consider your exposure to natural disasters like hurricanes, wildfires, and earthquakes. If your property is in an area prone to these disasters, your insurance costs will be higher.
Here’s a tip: search Obie’s Risk Map to learn about any natural disaster risks in your area. You’ll be better prepared to find the right insurance for your rental property.
The second critical factor influencing insurance costs is the crime rate around your property’s location. Premiums will be more expensive for properties in areas with higher crime rates.
Other factors relating to your property’s location include its proximity to fire stations, police departments, bodies of water, and the area’s construction costs.
How much would it cost to repair damage to the building or replace stolen items? The property size, construction materials needed, the value and quality of the furniture and household items on the property, and the equipment type all affect your premiums. The higher the replacement cost, the higher your premiums.
Level of Coverage
Your insurance cost will depend on the covered events and largely depends on whether you have an all-risk or named-peril policy.
A named-peril policy only covers perils the insurer names on the policy. In contrast, an all-risk policy covers all perils except those explicitly excluded in the policy. All-risk policies cost more due to the extensive coverage they provide.
A deductible is the amount of money you must pay out-of-pocket in the event of a claim before your insurance company begins to cover any costs.
Generally, your premium payments will be lower when you choose a higher deductible. However, this also means you are responsible for paying more if you have to file a claim.
Insurance companies consider the frequency of claims lodged against a property and the reasons why they were filed. Their reasoning goes like this: a consistent history of filing claims—even minor ones—sets up the expectation there will be future claims.
Therefore, the more frequently you’ve filed claims in the past, or the more past claims filed by the previous property owner, the more likely insurance companies expect you to keep doing so.
Apart from covered perils, how much your carrier will pay for damages also impacts your premiums. For instance, if your policy limit for building coverage is $1 million and the replacement cost is $1.5 million, your carrier will only cover up to $1 million, leaving you to pay the remaining $500,000.
A lower policy limit might save you on premiums. However, to protect yourself against unknowns, it is wise to purchase a policy covering all of the expenses associated with rebuilding or restoring your property to its original condition, or you can consider purchasing an umbrella insurance policy.
Additional Coverages to Consider for Your Commercial Property Policy
Don't settle for just basic coverage. Take the extra step and purchase additional insurance policies as riders, even though it may cost more.
If you weigh the expense of having good insurance coverage against having to foot the bill for damages yourself, the cost suddenly looks much more reasonable. By getting these added protections now, you can better protect yourself from potential financial trouble in the future.
This policy replaces lost business income from your property due to a covered event. For instance, if damage from a fire forced tenants to move out during repairs, you would no longer be receiving that income.
The difference between a business interruption policy and a loss of income policy is the former is more extensive. A loss of income policy only reimburses you for lost rent. A business interruption policy covers profits, fixed costs, payroll expenses, loan payments, taxes, and other business expenses.
There's more to owning and managing a commercial property than just providing a physical structure to your tenants. Your property will most likely have service equipment, such as boilers, elevators, and HVAC systems.
This equipment is expensive to acquire and maintain. That's why not having coverage can cost you a staggering amount of money when the equipment becomes faulty.
In the aftermath of a catastrophic event, like a fire or hurricane, a substantial amount of debris must be cleared before any repairs or rebuilding can occur. The cost of removing this rubble can increase quickly depending on local removal fees and how much you need to discard.
Fortunately, acquiring additional coverage to cover these expenses can provide some financial security under these circumstances.
Ordinance or Law
Building codes and regulations frequently evolve, and staying up to date with them can be expensive. If your property fails to meet the new standards, you'll need to pay for costly repairs or rebuilding work.
This is when ordinance or law coverage comes in handy. It pays for these costs and guarantees any reconstruction complies with all current regulations.
Next Steps for Apartment Owners: Get a Free Property Insurance Quote from Obie
Do you need to insure an apartment building with 5 or more units? Standard landlord insurance provides you with some coverage, but it won't protect you against natural disasters, fire, and other large-scale losses. That is why commercial property insurance is essential for larger buildings.
Obie is an online insurance broker dedicated to simplifying the process of buying commercial property insurance. Obie uses cutting-edge technology to streamline the insurance-buying process, providing quotes from multiple insurance carriers quickly and efficiently.
With Obie, landlords and real estate investors with multifamily properties of 5 or more units can find the commercial property insurance that fits their needs without spending hours comparing policies from multiple companies. If you're looking for commercial property insurance, Obie can make the process easier.
Obie gives you access to customized coverage options and offers great customer service to help protect your multifamily property while staying within your budget. To get an instant quote online, just enter your commercial property address on Obie’s website.
Next Steps for Owners of Other Types of Commercial Properties
Reach out the Obie Private Client team to learn what your options are. They’ll be able to provide you with an estimate or can point you in the right direction. Complete the form on this page to get in contact with Obie Private Client today.