Building insurance offers financial protection against property damage for landlords who rent buildings to commercial tenants. It can help cover costs from a fire, storm, or other incidents that damage or destroy your building.
What is covered by building insurance?
Building insurance covers buildings, structures, and completed additions that you lease to commercial tenants.
For example, building insurance covers costs related to:
- Fires
- Windstorms
- Natural disasters
- Burst pipes
- Vandalism
If a fire damages your building, building insurance can cover the cost of renovations to the walls, floors, ceilings, and any permanently installed fixtures or equipment. The same is true for water damage from a burst pipe, or windows broken by a storm.
However, building insurance does not cover office equipment or other moveable property, which is why you might also want the protection for your business personal property afforded by standard property insurance.
As with other types of property insurance, insurance on a building typically does not offer protection against floods and earthquakes, but you can add earthquake or flood insurance as an endorsem*nt.
How are building insurance and property insurance different?
Similar to commercial property insurance, building insurance is there to cover the cost of repairs if something happens to your property. But more than that, it covers your entire physical property and the land surrounding it.
However, property insurance covers more than your building, but also everything in it, as well as just outside of it. This includes electronics, furniture and equipment, signage, fences and landscaping, documents and inventory, and others' property.
Who needs building insurance coverage?
Commercial landlords may need the extra coverage offered by building insurance since they face more risks than the average small business owner when it comes to accidents and damages at your property.
A standard general liability insurance or commercial property insurance policy will likely have exclusions for people who rent out property. That’s why so many small business owners who work in real estate have specialized insurance for buildings to reduce their risk exposures and pay for costly repairs.
How do I get a building insurance policy?
Landlords can often add building insurance to their lessor’s risk only insurance (LRO), which is similar to general liability insurance. LRO protects against liability claims such as a visitor who trips on a broken step and suffers an injury on your property, while building insurance protects the building itself from damage.
Together, the policies offer building liability insurance and business property insurance similar to that of a business owner’s policy (BOP), only designed to meet risks specific to landlords.
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What are my building insurance coverage options?
With building insurance, you have a few choices in terms of how much coverage you wish to purchase for your property.
Per-occurrence limit
The per-occurrence limit is the total amount of coverage you’ll have for every building you own that is stolen or damaged in a single incident. It’s basically the total cost of damage for one event that your insurance will cover.
Aggregate limit
The aggregate limit is the maximum that your insurance company will pay for all covered losses during the policy period (typically one year).
Deductible
Your policy’s deductible is the amount you have to pay before your insurer will cover a claim. Choosing a high deductible can lower your premium, but make sure it’s an amount you can easily afford, so that you can benefit from your insurance when you need it.
Actual cash value
The actual cash value is one way of calculating how much an insurance company will pay on a property claim. The actual cash value is how much the used item is worth. It factors in any depreciation, or wear over time, and can be an inexpensive way to insure your physical assets.
Replacement value
The replacement value is another method that insurance companies use to calculate a property claim. It covers the cost of a brand-new replacement for the property that was lost or damaged. Since they pay out more on a claim, replacement cost policies have higher premiums than those based on actual cash value.
How much does building insurance cost?
Property owners who lease out a single unit can expect to pay less for building insurance than landlords with larger real estate portfolios.
It’s calculated similar to other property insurance costs, and depends on factors such as:
- The type of properties, such as residential or commercial
- The location of your properties
- Degree of risk management, such as security systems or sprinkler systems
- Business income
- Coverage limits and deductible
What other types of insurance do you need?
Building insurance and lessor’s risk only insurance cover most of the risks of renting out properties, but they are not the only policies you need. Additional coverages for landlords and other real estate professionals to consider include:
General liability insurance
A general liability policy covers basic third-party risks, such as someone who trips on a loose rug at your office and suffers an injury. It will not cover accidents involving tenants at your rented properties, which is covered by LRO.
Errors and omissions insurance
Errors and omissions insurance covers legal defense costs related to mistakes or oversights. It’s also called E&O or professional liability insurance.
Workers' compensation insurance
Workers’ comp is required in most states and covers medical costs when an employee is injured on the job. It also protects sole proprietors against work-related medical bills that health insurance might deny.
Business owner's policy
A business owner’s policy, or BOP, bundles general liability insurance with commercial property insurance at a discount. It covers business property claims at your office, but not damage to buildings that you rent out.
Commercial auto insurance
Commercial auto insurance covers the cost of accidents involving your business vehicle. Most states require this coverage for vehicles owned by a business.
Cyber liability insurance
Cyber liability insurance helps real estate professionals recover from costly cyberattacks and data breaches.
Business interruption insurance
Often added to property insurance, business interruption insurance covers lost income and other losses from a forced closure due to a fire or other covered loss.
Note that your renters will also need to carry renter’s insurance to protect their own property.
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Complete Insureon’s easy online application today to compare insurance quotes from top-rated U.S. carriers. A licensed insurance agent will help make sure you get the right liability and property coverage for your real estate business. Once you find the right policy, you can typically begin coverage within 24 hours.
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Updated:
July 5, 2023
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