Basics of Commercial Property Insurance

A few key concepts help anyone better understand how their commercial property insurance works.  Reading insurance forms is challenging for all of us but understanding the concepts addressed by the forms make them more manageable. The items below are terms and phrases used frequently in insurance to describe coverage or lack thereof. Hopefully the below will be helpful to your understanding.

1 – Commercial Property Loss Exposures – what can be damaged to cause financial loss

                A.  Real Property – this is property that is attached to the land or attached to a building that is attached to the land, like an office building or a piece of manufacturing equipment in a shop.

                B.  Personal Property – this is property that can be moved without damage, like desks, chairs and small equipment.

                C.  Personal Property of Others – this is property that can be moved without damage but is not owned by the owner of the policy. For whatever reason, possibly repair, the owner of the policy has items that do not belong to him/her but are his/her responsibility.

                D.  Property Off Premises – this is property that is owned by the owner of the policy but does not reside on the insured location.

2 – Causes of Loss – what happened that caused the damage which caused financial loss

A.      Fire

B.      Natural Disasters – earthquake, flood, tornado, blizzard, hurricane

C.      Weather Conditions – hail, lightning, ice, snow

D.      Accidents – explosions, aircraft, falling objects

E.       Crime

3 – Consequences of Loss – what makes up the financial loss

A.      Reduction in value – property is not worth what it should be due to damage by a cause of loss

B.      Cost to repair or replace – property is not usable until it is functional again

C.      Loss of income – business loses sales because the property is not functional

4 – Other Terms

A.      Insurable Interest – As it pertains to property insurance, insurable interest means that at the time of the damage, the damage must cause me financial loss. For example, a bank that has provided Mr. Smith a loan on his new office building has an insurable interest in the building.

B.      Insurance to Value – Simply put, this means insuring property for the correct value. The correct value can depend on the type of coverage provided by the policy. That is why it is important to understand the policy language. The correct value to you may not be seen in the same terms as what the policy lays out.

C.      Coinsurance - Coinsurance is displayed as a percentage. It is the percentage the policy requires the policy owner to carry of the insurance to value amount of the property. Failing to meet the coinsurance requirement results in a penalty and can reduce the amount the policy owner may receive in the event of a loss.

D.      Replacement Cost – Individual policies may tweak the wording but the generally accepted definition of this term is as follows: Damaged property will be replaced or repaired with materials of like kind and quality.

E.       Actual Cash Value – As with replacement cost, the wording can vary a bit but here is the consensus definition: Actual cash value is the amount determined by calculating replacement cost and decreasing that amount by depreciation due to age or usage.

These are just a few key terms and concepts that may better help when reading insurance policies or discussing insurance with an agent. As has been mentioned before, any time a term, concept, coverage, really anything about the policy is confusing, ASK!!! An insurance agent will be able to explain the terms and offer options for coverage.

Personal Umbrella Liability

We ask clients; "Do you have an umbrella policy?" Some say yes, but some say I don’t know. What is a personal umbrella policy?
Additional umbrella protection is becoming a "must have" for more and more insurance customers. Today, the threat of damaging lawsuits leading to personal financial ruin looms larger than ever. Without proper umbrella coverage, you could lose your home, savings and retirement as well as your future earnings. You can protect yourself and your family from this potential loss.
How do I protect myself and my peace of mind? A million dollar liability policy is the answer. It provides coverage above and over your personal liability coverage on your auto, home, boat and other personal exposures. You may possibly be able to add uninsured and underinsured motorist coverage to your umbrella which will provide you with additional bodily injury protection if you’re injured in an accident with an at-fault uninsured or underinsured motorist.
Personal umbrella gives you valuable coverage against claims or legal actions that aren’t included or aren’t covered under your primary policy, after you satisfy the policy deductible. You can purchase personal umbrella policies at one million, two million or even higher limit levels. This provides liability funds above your primary home and auto policies, which are often at limits of $300,000 or $500,000.
Here are some claims examples to better understand the protection provided to you under the personal umbrella policy.
While golfing, you accidently hit another player in the head with a golf ball, which causes permanent damage to the individual.
You are entertaining guests at your home and a friend falls down a flight of stairs due to a faulty railing. They become paralyzed due to a fall.
Your family dog bites a visitor at your home. A jury awards $400,000 to the victim.
You are traveling in your auto and are involved in an accident with injuries. An award of $750,000 is granted to the injured party.
The personal umbrella provides for certain covered perils not usually included in standard forms of liability insurance. They include:
Activities of an officer or director of not for profit organization
Liquor law liability
Legal defense in addition to the policy’s 1,000,000 of liability coverage
Blanket contractual liability
Worldwide coverage; and
Personal injury
Don’t risk all you’ve worked for! Your chances of being named in a large personal lawsuit are greater than ever before. It stands to reason that the more you own in assets and property, the more you stand to lose.
Do you have proper liability protection? Hopefully you do, but if not, contact Millhiser Smith for more information on personal umbrella coverage.

Business Income

If there’s a misunderstood coverage in the world of commercial property insurance this may be the one…BUSINESS INCOME INSURANCE.  Stay with me over the next few weeks and we’ll get a good handle on this mystifying coverage.

If you don’t feel like a Business income expert, don’t worry.  Even as career agents we take refresher classes on business income to continue to understand it.

Topic #1

THE PURPOSE OF BUSINESS INCOME:  To repair the profit and loss statement

1.       Bus Income pays ongoing operating during a business interruption:

a.       Payroll expenses                                              g.  Professional fees

b.      Property taxes                                                  h.  Utility expenses

c.       Insurance premiums                                      i.   Postage & Telephone

d.      Temporary rent expenses                           j.   Depreciation expenses

e.      Interest expenses                                           k.  Franchise fees

f.        Advertising expenses                                    l.   Maintenance expenses

2.       Bus. Income pays for net loss of profit during period of interruption.

3.       Bus Income pays extra expenses incurred to minimize the period of interruption.

a.       Rental of temporary facilities                                      g.   Special advertising expenses

b.      Moving to/from temporary facilities                       h.  Cost of additional employees

c.       Set up costs at temporary facilities                           i.   Cost of overtime and bonuses

d.      Purchase of temporary equipment (less resale)                j.   Cost to find substitute supplies

e.      Utility expenses at temporary facilities                  k.  Cost to find substitute supplies

f.        Cost of services performed by others

We’ll add to your understanding of business income over the next few weeks.

Topic #2               Glossary of Business Income Terms.

Topic #3               How much Business Income Limit should I have?

Topic #4               Business Income Worksheets.

Topic #5               Various types of Business Income Insurance.

Topic #6               Consequences of Inadequate limits.