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Commercial Landlord Insurance: Complete Guide

Commercial rental properties can bring a lot of income and profit, but they also come with multiple risks. To be properly protected, investors need to get good commercial landlord insurance.

This article provides all the information you need to know about insurance as a commercial real estate investor. We’ll go over the definition, the most popular coverages and exclusions, the process of choosing the right policy, and actionable tips on how to lower the cost. We’ll also show you how to file a claim so that you are prepared should a need arise.

Key Takeaways

  • Commercial landlord insurance is a type of real estate insurance needed by owners renting their properties to businesses. While it is not obligatory, it can help save a lot of money in case of different risks.
  • Commercial real estate insurance typically covers damage to the property, loss of personal items, general liability, and business interruption. Additional coverages can be chosen based on needs.
  • It is important to customize your policy in a way that best suits your property, your rental business, and you. This includes choosing the right company.
  • The average cost is $1,500 across the US market, but the exact price depends on a number of factors. Landlords can do certain things to minimize the cost.

Introduction to Commercial Landlord Insurance

Our guide starts with a definition of the commercial property insurance and an explanation of its importance for investors.

What Is Commercial Landlord Insurance?

Commercial landlord insurance policy is real estate investment insurance that covers commercial properties rented out to businesses rather than individuals. These include office buildings, retail spaces, warehouses, and any other properties used for commercial – rather than residential – purposes.

Generally, this insurance covers property damage, property owners’ liability, and temporary loss of business.

Importance of Insurance for Commercial Landlords

Investing in commercial property is an expensive business endeavor. Most commercial buildings cost a few million dollars to purchase, not to mention the cost of furnishing them and maintaining them. Meanwhile, they are subject to multiple risks when rented out, especially if they are used in certain industries.

Thus, it is crucially important for commercial real estate investors to get proper commercial rental property insurance to protect their building, their business, and themselves.

The Role of Insurance in Your Commercial Investment Strategy

Getting your commercial property insured is a key part of your real estate strategy.

On the one hand, the commercial landlord insurance cost is a major business expense that needs to be added to all other costs and incorporated into the investment property analysis.

On the other hand, obtaining the right policy is the only way to protect your investment against various perils and risks, including both natural disasters and human-made phenomena.

Key Features of Commercial Building Landlord Insurance Policies

Key Features of Commercial Building Landlord Insurance Policies

Here is what commercial landlord insurance covers and doesn’t cover

While insurance policies for commercial landlords can vary, there are certain things that all of them cover, some optional add-ons, and other items that they don’t cover.

Property Damage Coverage

First, commercial real estate insurance covers physical business assets including the building itself, additional structures, equipment, tools, inventory, and landlord personal belongings.

The commercial landlord insurance coverage includes fire, wind, lightning, storm, other severe weather factors, water damage, vandalism, theft, burglary, and unintentional tenant damage.

This is the commercial property insurance aspect of the policy and is typically the most expensive item.

Liability Protection for Commercial Landlords

Second, there is commercial general liability (CGL) insurance which covers damages that the business causes such as bodily injury, property damage, or reputation harm. This can refer to tenants, tenant customers, neighboring businesses or residences, contractors, and other individuals or legal entities. In this way, some commercial tenants’ insurance needs are also met.

The landlord liability coverage includes medical expenses, legal fees, and other costs.

Business Interruption Insurance: Safeguarding Your Income

Business income insurance protects against temporary loss of rental income should a property become inoperational due to covered damage. This is a major part of non-residential building insurance as it helps landlords continue covering business expenses like payments to banks, suppliers, and others.

Additional Coverage Options for Commercial Landlords

Depending on the business location and specifications, commercial landlord insurance can benefit from the following add-ons:

  • Flood insurance
  • Earthquake insurance
  • Commercial auto insurance
  • Commercial liability umbrella policy (CLUP)
  • Errors and omissions insurance
  • Workers’ compensation insurance
  • Data compromise and identity restoration

Common Exclusions in Commercial Landlord Insurance Policies

Commercial building insurance is designed to cover many different risks that might happen to a rental business and its owner. However, it doesn’t cover absolutely everything.

Here are the most common items that are not covered by a commercial policy:

  • Tenant personal property
  • Intentional damage
  • Damage due to poor maintenance
  • Flood damage (unless specifically added)
  • Earthquake and earth movement damage (unless specifically added)
  • Commercial auto damage (unless specifically added)

Coverage Limits and Deductibles: Balancing Cost and Protection

Eventually, there isn’t a one-size-fit-all model when it comes to insurance for buildings used for commercial purposes. In addition to optional coverage, coverage limits and deductibles can be adjusted in a way that provides the right balance between the cost and the level of protection. Investors should make sure that limits and deductibles are set to levels that provide the necessary protection without unnecessarily inflating operating expenses.

Choosing the Right Insurance for Commercial Landlords

Selecting the best business insurance for landlords needs to be based on careful and diligent analysis. Policies and prices can vary widely, and property owners have to make sure that theirs effectively protect their business and themselves, without breaking the bank.

Evaluating Insurance Needs for Commercial Properties

The process of choosing the right commercial real estate insurance needs to take into consideration the following aspects:

  • Market: Is your location prone to natural disasters? Is there a lot of crime activity?
  • Property type and price: What type is your property? How much is its current market value?
  • Property condition: Is your property well maintained? Is your building old or new? What materials is it made of?
  • Property insides: What equipment and tools are available on the property? Do you have personal belongings?
  • Occupancy and usage: Is your building used for offices, industrial activities, retail, etc.? How many tenants and customers are there?
  • Claims history: Do you have a clear claims history or have accidents often happened in your building?
  • Rental income: How much do you make per month from renting out the property? What recurring expenses do you need to cover?
  • Other insurance needs: Do you need to insure business vehicles? Do you need to insure employees? Do you have multiple commercial properties to insure?
  • Deductibles: How much can you afford to pay?

How to Compare Commercial Landlord Insurance Providers

A major strategy to obtain the right policy is to get a commercial landlord insurance quote from multiple providers. You can speak to both a commercial insurance broker and various insurance companies and compare available options.

When evaluating policies and quotes from different providers, you should focus on the following factors:

  • Standard coverage
  • Additional coverage options
  • Bundling options
  • Coverage limits
  • Deductibles
  • Premiums
  • Available discounts
  • Claims process

At the end, you need to select the company that offers the best coverage at the most competitive price.

Understanding the Cost of Commercial Property Insurance

Understanding the Cost of Commercial Property Insurance

Find out what costs of commercial landlord insurance and what factors impact it

The Hartford, one of the best landlord insurance companies in the US, quotes the average annual cost of commercial property insurance to be $1,500. However, the range of prices is wide, depending on many factors.

Factors Influencing Insurance Premiums

The pricing of commercial building landlord insurance is affected by multiple indicators.

The main ones include:

  • Location: In commercial real estate investing, just like in the residential real estate market, everything is determined by location, including the commercial landlord insurance cost. Properties located in risky areas, characterized by more frequent natural disasters or higher crime rates, pay a higher premium. For instance, landlord insurance in Florida costs significantly more than in other states because of wildfires, hurricanes, and storms.
  • Commercial building construction: Properties that are built with fire-resistant materials face lower prices than those made of wood, for example.
  • Building protections: The cost goes down when properties have properly installed, well functioning, and regularly inspected safety devices and features like smoke detectors, fire alarms, sprinkler systems, and burglar alarms.
  • Occupancy: Businesses with a lot of different occupants at all times need to pay higher premiums. For instance, insuring a restaurant costs significantly more than insuring the office space for a law firm even if all other factors like location and construction are the same.

Tips for Managing Insurance Costs

Reducing operating costs is an important aspect of investing in commercial real estate to run a profitable business. There are certain things that commercial rental property owners can do to lower the cost of their insurance without negatively affecting the coverage.

You can:

  • Make sure your building meets all construction code regulations
  • Safeguard your property with top safety and security systems and maintain them on a regular basis
  • Include only the additional coverages that you truly need
  • Bundle different insurances into a single package. For example, if you have a few rental businesses, you can combine homeowners insurance, rental property insurance, renters insurance, Airbnb insurance, commercial landlord insurance, and more into a single policy.
  • Enquire about available discounts
  • Raise deductibles
  • Pay premiums annually (rather than monthly)
  • Only file claims when absolutely necessary
  • Review the coverage and policy every year

Reducing Risks and Premiums: Security and Maintenance Considerations

Among the factors that impact the cost of building insurance for landlords, there isn’t much you can do about your market and construction, once you already own a property. However, there is plenty you can do to decrease the risks and thus the premiums associated with your commercial real estate property.

Most importantly, you should make sure that your property is regularly and thoroughly inspected (usually at least twice a year) and that all required maintenance repairs are immediately implemented.

Moreover, you need to install efficient security systems and devices and keep them working at all times. The less frequent security incidents and the lower insurance premium for years ahead will more than compensate for the initial cost of getting these systems purchased and placed.

Claims and Support: Navigating Commercial Landlord Insurance

To get a complete understanding of how business insurance works, you should familiarize yourself with the claims process too. It’s best to be prepared in advance so that you don’t need to learn about a new process all from scratch should a covered event occur as you will be under a lot of stress at this moment.

The Claims Process Explained

The first step is to contact your insurance agent and inform them about what happened. Reporting the claim can usually be done via an online form or on the phone and sometimes requires attaching photos. So, you should make sure you document the damage as soon as it occurs.

Next, you’ll be assigned an adjuster, and you will work together to assess the damage and evaluate the losses. The insurance adjuster needs to present a comprehensive report with estimated costs, and you need to agree on it.

Then, the insurance company or you can hire contractors to get the necessary work done. It’s important to work with a reputable vendor who will get the fixes done within the deadline and with the expected quality.

Support Services for Commercial Landlords

You should know that you are not alone – sometimes against the claims adjuster – in the claims process. If you disagree with the adjuster’s estimates, you don’t have to settle for them. You can hire your own adjuster and, if needed, also a third-party mediator. You can resort to an insurance lawyer as well.

When filing a claim, you need to be both realistic (don’t overestimate the loss) and firm (don’t settle for less than the fair value).

Providing the Right Coverage for Your Commercial Rental Property

There are many risks that come with owning and managing a commercial real estate property, and the impact of many of these dangers can be reduced or altogether eliminated by choosing good commercial landlord insurance. If you’re a new investor, make sure to analyze your property needs and check out different providers to select the best policy. If you’re an existing commercial property owner, remember to review your policy each year and adjust it according to your always-changing needs.

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