What are Some of the Factors that Make Up the Cost of Commercial Building Insurance?
Commercial building insurance includes a lot more than just protecting a business owner’s property. It encompasses replacement costs, actual cash value (ACV), liability risks, and the added lines of coverage for umbrella policies or high valued possessions. As a business owner, you want to make sure that you understand all of the factors that contribute to determining a premium price for a BOP (business owner package) or multi-peril insurance plan. Our commercial policyholders often-times have questions about insurance terms and the break down of multiple lines of coverage. We understand that being well-informed gives you the tools necessary to make the right choice while receiving the best value. Let’s look at some of these terms so you can rest assured you are covered for your particular situation.
A lot of components are put into play when it comes to insuring commercial property. For example, a building’s age, location, structural parts, and overall layout must all be taken into account. Commercial insurance plans can cover the main building and additional smaller structures (ie: sheds, garages, workshops, etc.) on the property. Therefore, the entire property plus all listed structures must be surveyed and considered when calculating an insurance premium.
In addition, the age of a building itself and the age of the roof are common factors in determining an insurance premium. Many underwriters will appreciate a risk that has a roof that is ten years of age or younger. Likewise, roofs that are constructed of metal or have 50-year-shingles in place may also make a policyholder eligible for discounts and/or a lower overall annual premium.
The location also matters. If business property is in a high-crime area, a floodplain, or any other spot that exhibits a larger than normal amount of risk the owners may see a change in their premium or coverage.
ACV vs. Replacement Cost
Depreciation is the main difference between an actual cash value policy and a policy based on replacement cost coverage. The overall age and condition of commercial property and its structures will significantly alter the premium price. Policyholders with commercial insurance policies that payout in terms of actual cash value (ACV) may have a lower premium, but they will also be reimbursed less money in the event of a claim.
The Insurance Information Institute breaks down the difference between policies with ACV and replacement cost coverage this way, “Replacement cost provides you with the dollar amount needed to replace a damaged item with one of similar kind and quality without deducting for depreciation—the decrease in value due to age, obsolescence, wear and tear and other factors. An actual cash value policy pays you the amount needed to replace the item minus depreciation.“
Replacement cost coverage may come at a higher premium price, but it also offers more in terms of reimbursement during a disaster, vandalism, storm, or fire.
A great thing about commercial building insurance is that there is coverage beyond just the structure(s). Commercial insurance can also cover the liability risk associated with the business and property on behalf of the business owner. This means there is added protection available if an accident occurs at a business resulting in a customer needing medical attention. Lawsuits and settlements can often be handled by the general liability coverage that is in place for a commercial policy.
The liability scenarios are endless and commercial business owners need to discuss their general liability exposure with an insurance professional. If you have questions, please contact one of our professionals at Smith-Kenyon Insurance Resources, LLC to be sure your property and business are adequately protected. Sufficient liability coverage will help during the commercial claims process when it comes to paying out for medical expenses, attorney fees, and court settlements.
Premiums for annual general liability coverage are often determined by insurance audits from outside companies. The basis for a general liability policy’s premium may be determined by sales, land size (ie: number of acres or square footage of building), payroll, subcontractor costs, etc.
Commercial insurance plans also offer a scope of protection for employers when it comes to keeping their employees safe. Workers’ compensation coverage can cover medical expenses, hospital stays, diagnostics tests, and disability pay-outs if a worker is unable to return to his or her duties for a predetermined amount of time. Multiple coverage lines exist to protect a business owner from workers’ medical costs.
Workers’ compensation coverage also requires an audit review to determine the annual premium. Payroll and subcontractor costs are the determining factors during a worker’s compensation audit process. An annual audit is done to ensure the right charge for coverage is always being applied whether a business is growing or shrinking.
Have you read our article about What Would a Lawsuit do to Your Business? There is additional information that can help you make informed decisions about handling risks. Let us help insure what’s important to you. We’ll get to know your needs and find a plan that’s right for your business. We can explain the different options available for commercial property and liability risks. We look forward to meeting with new and existing commercial customers to answer any questions regarding commercial insurance.