Buying a commercial property is a big decision and can be pretty stressful. If you’re looking to purchase a commercial property, you must know all the risks associated with doing so. It’s also essential that you protect yourself against these risks by taking out insurance. In this article, we will discuss some of the critical benefits of property insurance when buying commercial property:
Why Do You Need Property Insurance?
When buying commercial property, it is crucial to consider all the costs of purchasing and maintaining such a significant investment. Property insurance is one of those expenses that should be factored in when calculating your budget for buying commercial property. Ssince 2010, the retail building market in the United States has gradually grown. In 2021, the country saw commercial real estate development valued at 91 billion dollars. Such industries require insurance to protect themselves from harm, which is where property insurance comes into play.
Property insurance protects against loss. Every business owner understands the importance of safeguarding investments from unforeseen circumstances like fire and theft. Property insurance helps protect you from these losses by covering any damages or losses on your commercial property. At the same time, they are being insured under this policy.
Property insurance is an excellent investment in both time and money. Not only does it protect against financial loss, but it also protects against legal judgments.
Commercial Liability Insurance
Commercial liability insurance coverage protects your business from lawsuits filed by third parties. It covers damage to third-party property or the injury/death of a third party due to your operations. You can also purchase coverage for legal fees and defense costs associated with these claims. Thus, commercial liability and property insurance coverage go hand in hand with each other.
The following are examples of some common types of commercial liability insurance:
- Premises Liability: Covers claims related to slip and fall accidents, injuries caused by defective premises, or equipment such as stairs or elevators on your commercial premises.
- Product Liability: This type of coverage protects against a product-related lawsuit. These could result if an injury is caused by using defective products or services produced or sold by your business.
Paid Business Interruption Expenses
According to Insurance Business America, in the Allianz Global Corporate & Specialty’s (AGCS) Risk Barometer study, business interruption was rated as a key problem by 50 percent of US respondents. It was also reported as the most significant risk confronting businesses in 2022. Business interruption insurance is also known as business income coverage. It’s an integral part of any commercial property insurance policy. It can help you recover lost income if your building is damaged or destroyed by a covered loss.
Business interruption insurance will pay for expenses related to keeping your business running while repairs are made on the commercial property. Depending on the terms of the policy, this may include:
- Lost income, for example, rent or mortgage payments.
- Lost business income, for instance, client contracts that were underway before the damage occurred.
- Lost profits from goods that were in transit when the damage occurred.
- The cost of hiring temporary workers to replace staff members who could not continue working during repairs.
Protection of Equipment and Machinery
Property insurance is an essential part of any business and its operations. It protects your business from damage to equipment and machinery, theft, and vandalism. It also helps protect against the loss of income because of the damage, repairs following a fire or flood, and replacement costs for lost items.
Some property insurance policies also cover business interruption when you have a loss due to an accidental event that causes damage to your building. It could be anything from flooding from heavy rainfalls to an electrical fault in one of your machines resulting in smoke damage throughout a factory floor. In these instances where there’s been significant destruction caused by something out of your control, it may be worth looking into getting some form of cover for them. So you won’t financially suffer while waiting for repairs or replacements.
Coverage for All Elements of the Property
When you buy property insurance for your commercial building, it will cover all elements of your property. It means that the coverage is comprehensive and covers everything from the building to its contents, land, and business.
- Building: The building refers to the structure in which you conduct your business. It could be a house or an apartment complex, but it also includes other facilities like shops and factories.
- Contents: The contents refer to all items inside your building that can be damaged by fire, theft, or vandalism, such as furniture, computers, and office equipment.
- Land: Refers to any plot on which you have built something like a house or factory, including any open spaces within this land.
Tax Advantages
If you have any business, property insurance will likely help you save money on your tax bill. That’s because the premiums are tax deductible.
Suppose your commercial property is damaged or destroyed by a covered event, and there is enough remaining value in the property to make repairs. In that case, you can also use insurance to cover some of the expenses necessary for rebuilding or replacing it. These expenses are usually tax deductible as part of an ongoing business operation.
In addition, insurance can often cover losses like lost earnings due to damage or destruction. These losses may even be considered capital losses and thus eligible for special treatment on your taxes. For example, your taxes could go down if you had a rental income-based loss.
Property Insurance Helps Mitigate the Risk of Owning Commercial Property
When you own a commercial property, many things can go wrong. For example, if the roof of your building collapses and causes damage to your business, you will have to bear some expenses. You might also have to pay back the money borrowed from the bank to purchase and renovate your new building. Property insurance helps mitigate some of these risks by covering costs related to repairing or replacing damages from natural disasters like fires and flooding. It also helps mitigate other unexpected events like vandalism and theft.
