Everything You Need to Know About Commercial Property Insurance

commercial property insurance

Renting your commercial property out, trading from home or a business premises like a; shop, office, gym or restaurant – then you will need to ensure your company’s building and its assets are insured against any unseen event, when you least expect it. 

As landlord of a commercial property, you can’t be 100% sure that a tenant won’t damage your property or even refuse to pay rent and run away. Also, remember that your property isn’t invincible to natural disasters, even if they happen rarely.

In this guide, we’ll cover everything you need to know about commercial property insurance, so let’s get started right away!

What Is Commercial Property Insurance?

Commercial property insurance is a policy that you can apply for as any type of business owner or landlord. It provides financial coverage in case your property was damaged by a natural disaster, or a tenant. 

However, these aren’t the only cases where commercial property insurance applies. The scope of commercial property insurance coverage varies from one company to another. It also depends on whether you opt for a basic or advanced coverage plan.

On a side note, you don’t have to be the owner of the property to apply for insurance. 

How Commercial Property Insurance Works

Commercial property insurance works similarly to other types of insurance. Whenever something happens to your property, you can file an insurance claim, and if it’s covered, you’ll only pay a deductible and receive money equivalent to the compensation cost. 

The deductible is a small amount of money that you need to pay your insurance provider when you file an insurance claim. It’s usually a tiny per cent of the total value of expenses.

For example, if the damage of your property would cost £10,000 to repair, you might be required to pay £500-£1000 as a deductible. Of course, the exact per cent of the deductible may vary based on the incident and the company. 

That’s why you should inquire about the deductibles before signing up for a contract with an insurance provider.

Types of Commercial Property Insurance

shop frontage

A generic commercial property insurance policy provides coverage for almost all forms of damage or theft. However, some companies offer very specific types of coverage. This is common in regions where a particular occurrence is more likely to happen than in other areas.

For instance, if a city is known for being a common target for terrorists, companies may offer standalone terrorism insurance policies. Similarly, if a region has a higher likelihood of floods, insurance providers in that area may have flood-specific insurance policies.

Other common types of property insurance include:

  • Earthquake insurance 
  • Flood insurance 
  • Crime insurance 
  • Damage insurance 
  • Hurricane insurance 
  • Rent loss insurance 

How to Apply for Commercial Property Insurance

Applying for commercial property insurance is pretty straightforward. All you have to do is present documents that prove your ownership of the property or your responsibility of insuring it. 

Once the company receives your application, a representative will visit your property to assess its pre-insurance condition. It’s highly recommended that you present your property in the best possible condition when applying, as this could reduce your premiums. 

Choosing a Company

There are several companies that offer commercial property insurance. Some of the most well-known companies in the UK include:

  • Zurich
  • Allianz
  • AXA
  • Sutton
  • Thistle Underwriting
  • AVIVA
  • Gresham Underwriting
  • QBE
  • NIG

Of course, there are many other insurance providers across the country, but these are some of the most reputable ones. 

Before deciding on a particular company, try to compare their policies and see which provides the most coverage at the best price. You should also inquire about the deductibles and the replacement cost. Sometimes, a company may offer high replacement costs, but the high deductibles make them less valuable to you. 

Also, remember that not all insurance providers cover your property with replacement costs. Some use the actual cash value, which basically means that the company will pay the current value of the damages.

Additionally, make sure that you ask about special discounts that may apply to you. Sometimes, making a few changes to the property may make you eligible for lower premiums, so don’t forget to inquire about that before signing the agreement.

The less likely your building will get damaged or vandalised, the lower your insurance premiums will be. Some of the improvements that can help you minimise your insurance premiums include: 

Installing a Robust Security System

security camera

A security system makes your property a less-favourable target for criminals. By showing that you care about protecting your building from possible theft attempts, the insurance provider will charge you less every month. 

Just keep in mind that a security system doesn’t mean installing a single sensor at the front door. You need to install multiple motion sensors, cameras, and window break detectors.

Installing Smoke Detectors and a Fire Suppression System

Fire damage can be very costly. By installing a fire suppression system, the risk of complete fire damage can be significantly reduced. 

This means that if you make a fire damage claim for your insurance company, the replacement cost of repairing a few parts of the building will be much less than rebuilding the entire property. 

Ideally, your system should include components like fire-resistant doors and ceilings, fire sealants, fire barriers, X gypsum board, and fire-rated windows. 

Oh, and try to reduce the amount of wood present in the place. For example, you can use HPL or aluminium kitchen cabinets instead of wooden ones. The less wood you have in the building, the slower a fire will spread if it happens. 

Making Regular Maintenance Sessions

No building is invincible to signs of wear. However, by running some proactive maintenance sessions on the piping, appliances, equipment, elevators, and electric wirings, you’ll keep the property in great condition, improving your chances of getting more cost-effective insurance plans. 

Tackling Safety Concerns

Simple things like insufficient lighting, walkway cracks and limited spacing between walkways and bushes can cause accidents. By making sure that the building is safe for inhabitance, your insurance premiums will be way less. 

Is Insurance Mandatory for Commercial Property?

No, as a business owner or landlord, you’re not obligated by law to have commercial property insurance. The only scenario where commercial property insurance could be a necessity is if your property is mortgaged. This largely depends on the lender, though. 

What Commercial Property Insurance Covers

umbrellas

Here’s a quick overview of all the things that property insurance covers:

Loss of Rental

If you’re unable to rent your property for a few months because of damage or any other out-of-control reasons, you’ll be covered under insurance until you can rent it again. This is especially important for landlords who rely on renting their properties as a primary source of income.

Damage to the Property From Tenants

Irresponsible tenants aren’t as rare as you’d expect. You can rent your property to a tenant and get surprised by severe property damage. 

We’re not talking about broken showers or decorations, but more about heavier damage like broken furniture, damaged walls, and broken ceilings. Other items that may be covered include equipment, fixtures, inventory, and supplies.

In some cases, the tenant may offer to pay for some or all of the damage caused, but there’s no guarantee that your tenants will be willing to take responsibility for what they’ve done. 

You should always be prepared for the worst-case scenario, especially if the tenancy agreement states that the tenant isn’t responsible for paying for any damage to the property.

Theft

If a tenant didn’t pay their rent before leaving, you might be eligible for insurance cover. The same applies if the tenant stole something valuable from the property. You should still roam the building to ensure that everything is in place before the tenant moves out.

Also, even if the thief wasn’t the tenant, you can still make insurance claims.

Weather Conditions and Natural Disasters

Weather can be pretty unpredictable, and the damage it might cause to your property could bankrupt you. That’s why you need to be prepared by opting for property insurance that covers your property in case of harsh weather conditions. 

If your property was ruined because of natural disasters like floods, earthquakes, and hurricanes, you can file an insurance claim to get the rebuilding costs covered. 

Terrorism 

Some insurance providers cover properties in the event of a terrorist attack. However, if the region is more susceptible to terrorist attacks than other parts of the country, the company may impose extra fees for terrorism insurance.

Legal Costs

If you can’t get a tenant to pay for rent in a friendly way, or if the tenant refuses to move out of the house, your last resort would be to file a lawsuit. However, lawsuits can cost you quite a lot of money, which could actually be close to the amount of money you filed the lawsuit for in the first place. 

With commercial property insurance, you don’t have to worry about legal costs because most companies cover them in their policies.

Liability

If one of your tenants gets injured or even dies on your property, you’ll be liable in front of law if the tenant or one of their family members decides to sue you. Just keep in mind that not all companies cover liability in their basic property insurance policies. 

The good news is that many insurance providers provide liability insurance along with their commercial property insurance as a full package, which would be called “commercial landlord insurance”.

What Commercial Property Insurance Doesn’t Cover

commercial property insurance

While commercial property insurance policies cover lots of expenses associated with property damage, legal work, and rental loss, not everything is covered. 

For instance, if you or one of your partners or employees damage the property on purpose, you won’t get coverage for that. Another example is when a “natural accident” happens, like when one of the tenants breaks their phone because they slipped in the kitchen. 

You should also take into consideration that not all companies provide the same extent of coverage. For instance, some insurance providers cover flood damage while others don’t.

Related Questions

Do I Need Commercial Property Insurance?

Yes! Commercial property insurance can be an excellent investment that can save you loads of money down the line. 

You might think that you can do without it, but we bet you wouldn’t think the same way if a flood decides to visit your front door or a tenant destroys your property.

Should I Ask the Tenant to Pay for Property Insurance?

There are no legal laws that prevent landlords from including insurance premiums in the tenant agreement. However, it’s up to the tenant to decide whether they’ll be comfortable paying for insurance or not. 

Can I Cancel Commercial Property Insurance?

Yes, but there are usually some restrictions. For example, some insurance providers may only allow you to cancel after a certain number of years have passed. Others may facilitate the cancellation after just one year of insurance coverage. Nevertheless, you can negotiate the insurance term based on your requirements. 

And of course, all companies offer a grace period (usually 30 days) within which you can cancel your policy before committing long term. All in all, we’d recommend that you sign the contract only after you’re 100% sure that you need the policy and have the money required to pay for the premiums. 

Are There Other Types of Commercial Insurance?

Yes, there are several other forms of commercial insurance, which include:

  • Commercial Auto Insurance
  • General Liability
  • Business Interruption Insurance
  • Errors and Omissions Insurance
  • Workers’ Compensation Insurance
  • Cyber Liability Insurance
  • Management Liability Insurance
  • Employment Practices Liability Insurance

How Much Does Commercial Property Insurance Cost?

Generally speaking, commercial property insurance shouldn’t cost you more than £1000 per year. The exact cost may vary from one company to another, but we can safely say that the £700-£1200 range is a good representation. 

Are There Any Alternatives to Commercial Property Insurance?

There aren’t any real alternatives to commercial property insurance. The only other way you can get your rights legally is through the tenant agreement. However, a tenancy agreement is considered a “weak document” that’ll only get you so far. 

Not to mention, these agreements only disclose the landlord-tenant relationships. In any other scenario, like natural disasters, the agreement won’t help at all. 

Can I Get Commercial Property Insurance If I Still Have Instalments to Pay?

Yes, you can definitely apply for property insurance, even if you’re paying for it in instalments. In fact, you don’t even have to be the owner of the property to get it insured. 

What Happens to Insurance If I Sell the Property?

If you decide to sell your property, there are two ways to terminate your insurance policy. First, you can contact the company and inform them that you’re selling the house to a new owner. And once you present the required documents, your insurance agreement will be cancelled. 

Another course of action to take is to transfer insurance to the new owner if they wish. 

Final Thoughts

Commercial property insurance can definitely be a wise investment to protect yourself from heavy expenses during unexpected situations. 

The annual premiums won’t cost you that much compared to what you’d pay if you didn’t have insurance coverage. After all, it’s much better to prepare yourself for the worst before it happens. 

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