Business Insurance Basics

Business Insurance (as the name implies) consists of a wide range of policies to protect those engaged in business. If you're a landlord providing rental property, you will most likely need to purchase a "business insurance" policy. Note: This type of policy will usually be required if you do not live on the premises and/or your property has more than 4 units. Tip: In some states, if you live on the premises and your property has 4 units or less, then your property can be written on a regular homeowner's policy.

You will also want to be clear on what "level" of coverage you have on your policy for your rental property. The policy could come in a "Basic Form" which may cover fire, smoke, wind and hail damage, lightning, aircraft and vehicle collision, vandalism, riot and sprinkler leakage. Then there could be an option for "Broad Form" which may include everything in the Basic form coverage plus damage from the weight of snow and ice, falling objects, glass breakage and water damage from interior frozen & cracked pipes. Lastly, the most inclusive option could be what's called "Special Form" coverage, which could include all covered losses under the Broad coverage plus other types of direct physical loss that are not limited or excluded in the policy.

Tip: A good policy will provide for you to continue to receive your rental income, should your tenants be forced to leave due to a covered loss. A good policy will also provide replacement cost coverage (where the insurance company does not deduct for depreciation) for your business personal property. This personal property can include appliances and fixtures etc. that are not considered a part of the actual building. However, this property belongs to you as a landlord and in the case of a storeowner, in-stock merchandise would fall under this category. A perfect example of business personal property would be a washer and dryer that you own, which are for tenant use and on the premises of your rental property.

Another important consideration when buying business insurance is the liability factor, as a landlord, you'll want to have higher than normal limits of liability, at least $500,000 per occurrence and $1,000,000 total for any given year can be a good starting point. More importantly, with the relatively inexpensive cost of liability coverage, it is recommended that you consider limits even higher than the ones stated above.

Tip: When you insure more than one rental property with a particular insurance company (for example 4 or 5+ properties), ask your agent if you are eligible for a multi-property discount. Additionally, insurance companies may give discounts in the form of "credits" to businesses and owners of rental properties (apt. & office buildings) for such things as: managerial experience, whether or not the property has a sprinkler system, non-combustible/fire resistive construction and/or a smoke & fire alarm detection system to name a few.

Many insurance companies have custom designed "packages" for a lot of common businesses, such as a contractor's package, a body/repair shop package, a religious institution package and so on. These "packages" will have coverage(s) specifically geared towards the particular business for which each was designed.
Some of these packages contain the most needed basics, while allowing the business owner to add additional, optional coverage(s) as needed (sort of a'la carte).

These "add-ons" could be anything from coverage for employee dishonesty (you can file a claim if one of your employee's steals money from the business, usually with a maximum coverage limit of $10,000 or more), loss of refrigeration (if the power goes out in a restaurant for example, spoiling the establishment's inventory), coverage for valuable papers, computer fraud, money orders and counterfeit paper currency to name a few.

Professional Liability insurance is the type of liability that will offer protection for professionals, should they become the target of a lawsuit arising out of performing the duties of their profession. When most people think of this type of insurance, they think of only Doctors, Dentists and the threat of malpractice suits. However, there is also professional liability for Barbers, Beauticians and Clergy etc. Professional Liability Insurance (also known as Errors & Omissions or E&O), can cover many other professions as well, including: Accountants, Physicians, Mortgage Brokers, Investment Advisors and Real Estate Agents, Brokers, and Appraisers, Abstractors and Title Agents, Escrow Agents, Attorneys, Engineers and Architects, the Media, Consultants, Information Technology Professionals and Directors & Officer's coverage for both profit and non-profit companies.

Some industries require Professional Liability insurance, others don't have a mandatory requirement for it. It will more than likely be up to you, the business owner, to make sure that you and your employees are adequately covered.

Lastly, policies that are available which you may not be familiar include: "Buy-Sell Agreement," which is a type of policy that is beneficial in a partnership, where if one covered partner dies during the partnership, the surviving partner will receive death benefit proceeds to "buy the other partner out" or pay the deceased partner's heirs for their share of ownership. Another policy called: "Key Person Insurance" can pay you as the businessowner for losses sustained to your business, as the result of the death of the "key person," who was largely responsible for the success of the business.

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Family 1st™ is an Illinois licensed Insurance Agency.