Owning commercial property is the gift that keeps on giving. You think you’re finished when you close on the purchase, but that’s only the beginning: maintenance, repairs, upgrades, property taxes and unexpected expenses keep the costs coming. But solid property insurance can help keep some of the other costs at bay. And a number of factors, some of which apply when you purchase a property, can affect the cost of your commercial property insurance. Here are three to consider.
How old is the building you’re insuring?
You may recall a 1986 movie called The Money Pit, in which Tom Hanks and Shelley Long starred as a couple who must come to terms with the costs of an old building they purchased. This concept shouldn’t come as a surprise: older buildings are more susceptible to damage than newer buildings, from issues such as old wiring or worn structural components. And any renovations can be costly, as they usually involve bringing the building up to code. This can translate into costly repairs, which drive up the insurance premium. You can generally make an assumption: the older the building, the higher the insurance costs.
What is the purpose of the building?
What your building does is just as important as how old it is, because what it does determines two things: where it is located and what is in it.
First, let’s look at location. Buildings in low-crime areas are generally cheaper to insure than those in high-crime neighborhoods, buildings in rural areas are generally cheaper to insure than those in city centers, and buildings in relatively mild climates are generally cheaper to insure than those in areas prone to natural disasters. Choosing the location of your commercial property carefully will save on premiums.
Next, let’s look at what your business does. Are you a manufacturer of heavy equipment, or are you storing diamonds? That may seem like a silly question, but it matters. So too does the type of equipment. If your building is home to older equipment that is harder to maintain and repair than newer equipment, this will increase your insurance costs. The type of equipment is also a factor, since heavy industrial machinery is typically more expensive to insure than office equipment. However, it may be cheaper to keep older equipment and pay higher premiums than to buy new equipment; everything is a balancing act.
What kind of coverage do you want?
Too often, property owners overlook the distinction between replacement value and cash value coverage. Replacement value pays what you need to replace damaged goods with brand-new items; cash value pays what your depreciated property is worth. Replacement value coverage costs more, so it comes with higher premiums. But you may be able to save money with a business owner’s policy (BOP), which combines your property insurance coverage with other types of business insurance coverage.
We’d be happy to review your specific property insurance needs and determine if the costs are appropriate. Contact us today to get your property insurance checkup going!