Property ownership is a significant investment. The purchase price is only the beginning: maintenance, repairs, and property taxes add to the price of owning a commercial building – as does obtaining the proper insurance coverage to keep your investment safe.
Insurance coverage can influence where to locate a building, what upgrades to install, and how the building is constructed. At least, it should. Many property owners don’t realize how much these factors can affect property insurance rates. To save on insurance, owners should understand what influences property rates and what to do to reduce their insurance costs.
Following are seven factors to keep in mind. As you consider investing in a new building or research insurance options for a current property, ask yourself:
How old is the building? Older buildings typically cost more to insure, as they’re more susceptible to damage from issues such as old wiring or worn structural components. Additionally, if a building must be brought up to code, this can translate into costly repairs. All of these factors will drive up the premium.
What type of equipment does it house? If your building is home to older equipment that is harder to maintain and repair, this will increase your insurance costs. However, you should weigh the pros and cons of paying this rate and keeping the equipment you have versus investing in new equipment, which may be even costlier. The type of equipment is also a factor, since heavy industrial machinery is typically more expensive to insure than office equipment.
Where is the building located? Buildings in low-crime areas are generally cheaper to insure than those in high-crime neighborhoods. Also, locating in areas prone to natural disasters, such as hurricanes or tornados, will also affect insurance rates. Choosing an investment property in a safe area will save on premiums.
What security is in place? A building that is well-protected from vandalism and theft generally earns lower premiums. If your building offers low-security measures, consider investing in a better system that will help you save on insurance costs.
How much space do I really need? If you rent a small space for your business, your insurance policy will cost less than one for a large office or factory. Consider how much space you realistically need in your operations. Unnecessary space raises insurance premiums and property taxes.
Do I want replacement value or actual cash value coverage? Too often, property owners overlook this distinction. Replacement value pays what you need to replace the damaged goods with brand-new items. Cash value pays what your depreciated property is worth. Logically, replacement-value coverage costs more, so you must determine if this coverage is worth the higher premium.
Can I combine my coverage? A business owner’s policy (BOP) may offer potential savings. This combines your coverage for property insurance with other types of business insurance coverage. The bundle is designed to provide adequate coverage plus savings for business owners. Consult with your insurance agent to review the options for your business.