Whatever your industry, finding the right space for your business requires a close look at many factors, including neighborhoods and customer traffic, safety and compliance concerns, the presence of specialized equipment, and more. When evaluating your options, it’s important to note that certain aspects of a space may increase your risk and impact your insurance costs. While not everything is under your control, there are ways to mitigate risk when you buy or lease commercial space so that you can better protect your property, your employees, and your bottom line. Here are three things you should do before purchasing a policy:
1. Manage risk up front.
Taking steps to protect your space from potential hazards sends a signal to your insurance provider that you’re taking your shared concerns seriously—and your actions could translate into lower premiums. Here are a few ways you can reduce your risk:
- Secure your space with deadbolts, shatter-proof glass, an alarm system, or security cameras.
- Guard against fire with smoke detectors and sprinkler systems. Also, develop a fire-response plan, which should include posted safety routes, extinguishers, and battery-powered backup lighting to illuminate exits. A plan shows your insurance provider that you’re dedicated to protecting two extremely valuable assets: your property and your people.
- Update your infrastructure — particularly aging electrical systems, structural issues, insufficient drainage, and anything else that could lead to a loss.
- Consider the setbacks that significant risk factors can cause. A fire, for example, could generate losses and costs far beyond structural repair. Your equipment, inventory, and valuable data might all be damaged or destroyed. The trickle-down costs of repairing or replacing everything affected — as well as the loss of revenue during your recovery — can be crippling.
The investment you make on upgrades, security, and safety measures can pay for themselves. Reducing the risk of theft, damage, and accidents will save your business time, money, and trouble in the long run. If you are leasing your space, keep the above factors in mind as you evaluate potential locations for your business.
2. Determine the value of equipment and property.
The laptop you use to manage payroll and other expenses gets the job done—but what happens if it gets damaged and you need to replace it? The same goes for any piece of equipment or furniture in your space. In the insurance world, there are two primary ways to value your property assets if they are damaged, stolen, or destroyed:
- Replacement cost: What you would pay for the item at today’s cost. In other words, if your laptop is stolen, your coverage can reimburse you the full cost to buy a newer, similar model—even if the current one is three years old and has a cracked screen.
- Actual cash value: What you would pay for a similar item at today’s cost (its replacement cost) minus depreciation—this is what you would get for your property if you sold it. Depreciation accounts for the item’s decrease in value due to wear and tear or age. Going back to your stolen three-year-old laptop, your coverage would reimburse you for some of the cost to replace it, but you might have to chip in some of your own money to get a new model. This option values your property at less than replacement cost, but it can be a more cost-effective way to cover the property that you use every day.
You and your team are the best ones to determine which option is best for your business, so talk to your internal experts before making a decision. Your independent agent can help make sure that your coverage limits and valuation type are adequate for your property. Spending a little more time and money up front can save you time and money later if you experience a loss.
3. Consider additional coverage.
When discussing premiums, it’s also important to consider the value underlying those costs. If you save 20 percent on your basic commercial property coverage but end up having to buy several additional policies or add-ons, you may not be saving much—if anything. Consider the following add-ons that your business might require:
- Business owner’s policy (BOP) or commercial package: You may be able to save on your overall insurance costs by bundling coverages together. A BOP or commercial package policy allows you to combine property and general liability coverage into a single policy. Not only can you protect your property, you can also protect your business against general liability losses such as customer slips and falls.
- Surrounding structures: If there are other structures on your property that you use for business, such as a shed to house equipment or inventory, talk to your provider or agent about purchasing property coverage beyond your primary building.
- Business interruption: While your property insurance covers lost inventory and furniture after a loss, without business interruption coverage you would not be able to recoup lost income or pay expenses if your business is unable to operate. This coverage is typically included as part of a BOP.
- Inland marine: If some of your property moves between locations, consider covering it through an inland marine policy. Without the right coverage, you might find yourself footing the bill to replace the tools, supplies, and machinery that you depend on off-site. You can also select coverage to protect clients’ property that is left in your care.
- Equipment breakdown: Property coverage protects you against causes of loss, such as fire, but may not cover equipment damaged as a result of a power surge or short circuit. Equipment breakdown covers repair or replacement and sometimes lost income (if you need to temporarily shut down), extra expenses to continue running your business, and the lost value of spoiled inventory.
- Flood/earthquake: Standard property insurance rarely covers damage due to floods or seismic events. If you are in an area that is prone to flooding or other extreme weather, there are ways you can protect your business. For example, you may be able to get commercial flood insurance through the National Insurance Flood Program. Talk to your independent agent about what options might be available to you.
- Commercial auto coverage: Just because it’s parked at your workplace doesn’t mean your vehicles are covered. Personal vehicles require a personal policy, and vehicles owned by or used for your business likely need a commercial auto policy.
- Having the conversation: When you buy or renew a commercial property policy, underwriters will look at everything from the construction materials of your building and your safety measures to the type of operation you have and the size of your exposure. To ensure that you’re getting the value you need, have a frank discussion with an independent insurance agent. Don’t leave out any exposure points or past claims. Your agent can help you determine the right coverage options based on your assets and risks—and even point you toward insurers with valuable risk control services. Find out more about Liberty Mutual Insurance’s commercial property coverage today.
*Liberty Mutual Insurance is the #1 preferred business provider based on 2016 survey of business insurance buyers on preference of national carriers sold via independent agents.
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