Reading a Multi-Housing News article the other day inspired me to pick apart and break down a piece published on the trips and traps of insurance.
1) Pick the right broker
Pick an insurance broker who you not only get along with, but trust to give you the proper asset valuation provides you peace of mind you don’t even know you have until something goes array.
Your broker should not only specialize in the type of business you are in, but should offer custom solutions to help both mitigate your risk and maximize your business’ NOI
2) Purchase the right insurance
Too often I find people asking for specific policies or coverage amounts without knowing the what their business truly needs. Most businesses need AT MINIMUM a general liability, property and excess liability policy.
Cyber/Data policies have become more and more important as our society further moves online.
Deductible buy down and passive income stream programs can also be implemented through a broker. *Note: Not all brokers have access to these programs or even know about them. If yours doesn’t, I’d be happy to help point you in the right direction.*
My suggestion: Next time you are getting new insurance or your reviewing your policies, ask the broker what they would suggest for your coverage. Asking what they suggest for coverage gives you insight of proper coverage needed, insurance trends and where your coverage may be lacking.
3) Types of coverage
What do you look for on your insurance policy?
There are numerous forms, coverages, and protections to look for when you’re obtaining or reviewing your insurance.
All peril vs named peril. Replacement cost vs actual cash value. Business interruption. And many more.
Knowing what you have is imperative come time when you have a claim. To have a full bodied policy you will want to have All Peril coverage. This means unless it says it’s excluded in the policy language, it’s covered.
Also, for your property (building and business property) carrying Replacement Cost will include coverage to rebuild your structure or fully reimburse you for your business personal property.
Finally, business interruption coverage helps your business stay afloat when you have a claim.
**Note: there are numerous other coverages you need, these are simply a couple to consider. Make sure you have an annual review of your policies with your broker. If you don’t, I would be happy to help you review.**
4) Replacement Cost vs Actual Cash Value Coverage
If you own property, one of the most important things to know is how your insurance will protect it?
When analyzing how the insurance cost could be lowered, the type of building coverage is one of the most common.
Replacement Cost: This coverage is the full rebuild or “replacement” cost of the property. Often this number is configured by a Marshall & Swift/Boeckh calculator which accounts for all things regarding the property (interior and exterior finishings, square feet, bathrooms, etc.). Replacement Cost coverage is typically the most comprehensive coverage a property can have.
Actual Cash Value (ACV): Depending on the area of the country, ACV most often matches the market value of the property. Carrying ACV is likely lower in cost compared to Replacement cost, but can create holes in policy coverage. It is a good coverage to consider when comparing price, but it will require additional policy understanding to ensure you are protected when a claim occurs.
Make sure to have an annual review of your policies with your broker. If you don’t, I would be happy to help you review.
5) Check the policy limits.
All insurance policies have the same basic policy coverages. All insurance policies also have additional “included” coverages barrier within the policy language.
When insurance policies appear to be the same (when comparing) or you want to know more about your coverage options, the policy limits are what you’re most likely going to review.
Policy limits are coverage items which state the full amounts of each individual coverage. Often, these coverages are listed within the policy so it’s more difficult to find them.
Why they make a difference?
When you have a claim, these coverage amounts become more important to you so the amount out of your/your businesses pocket is minimized.
The best thing to do is to have an annual review of your policies with your broker. If you don’t have annual reviews, I would be happy to help.
6) Alternative Coverage to Consider
Insurance coverage is often thought/assumed to be cut and dry, the proposal you get has no other options.
This can be true if you get your insurance through a captive company. (I.e. most companies who market on tv or are well known).
When going through a broker there are *usually* additional alternative coverage options to potentially add to your protection plan.
A few examples of alternative coverage to consider:
- Passive income stream programs
- Deductible buy-down programs
- Flood
- Earthquake
- Cyber
Not all brokers have access to help create a custom risk mitigation plan to fit all types of asset classifications. (ex: construction, tech, multifamily, distillery, hemp, etc.)
I would encourage you to start a conversation with your broker to see what additional options they have available and what may be a fit for your assets.
If your broker hasn’t heard of these additional coverage options, I’d be happy to give you some examples of how each works and what I have seen be most commonly implemented in your industry.
7) Claims and Company Financial Rating
The stronger a company’s financial rating, the less you have to worry about a claim being paid for when you have a substantial loss.
Claims are handled differently company to company, so your experience could be drastically different depending on where you hold your policies.
Your insurance broker typically can’t do much or help much with your claim other than providing a resource for you to send information on how it’s progressing.
My best advice: Do some research and due diligence on the company to try and learn how the company handles claims prior to purchasing a new policy/package.
Hopefully these 7 tips help you gain some basic knowledge about insurance.
If there is anything specific you want to learn about in the future, please message me or email mitigationminute@gmail.com
Full article mentioned above:
Cheers,
MM