Entrepreneurs are used to the age-old question; “How you gonna pay the rent?”
But all too often small business owners ignore a related question: “Should you pay the rent insurance”?
The truth is, in many cases it’s an easy question to answer. The data shows that small business owners who forego renters insurance are leaving themselves vulnerable to theft, natural disasters, and ultimately – the loss of everything in the building. According to data from Boston-based Homesite insurance group, renters are more prone to losing valuables than those who own their own properties.
“You’ve worked hard in this economy to keep your business afloat and like most Americans you are looking for ways to cut costs,” says David Solomon is Founder and President of Amity Insurance in Quincy, MA. “The first thing that comes to mind is cutting out insurance. After all, you have never had a claim, and it seems that the cost of insurance goes up every year.”
“(But) some business owners are under the misconception that if there is a fire in their building or a bust pipe that damages your stock, that the landlord’s insurance will pay to replace the items. And that’s wrong.”
What is business rental insurance? According to Michelle Hirsch, vice president at Brunswick Companies, a Fairlawn, Ohio-based insurance and risk-management company, rental insurance, otherwise known as business owner policy (BOP), is a type of liability insurance that covers two key areas: casualty and property. “If someone trips and falls on your company’s property, even though you don’t own that property, that’s covered under casualty insurance,” she explains. “And if your business suffers a fire and you lose everything, that’s covered under property loss.”
Typically, landlords don’t want to be held liable for small firms they rent to, so they may demand that you get some rental insurance. It’s not mandatory, but it can de a deal-breaker for renting the property in the first place, adds Hirsch. “The landlord may say, ‘I don’t want to be held responsible’ for things that happen on the premises, so they’ll ask you to buy renters insurance as part of the basic rental agreement,” she says.
How can rental insurance help? In a word, by protecting your business investment.
With renters insurance, a small business owner is protected by natural disasters, like a fire, a flood, or even a lightning strike. As Hirsch says, most business insurance policies also offer liability options that cover accidents (like a visitor taking a fall in your building).
Or, if you set up shop in a tough neighborhood, renters insurance also has crime & theft insurance to protect you from a break-in.
Here are a few things to consider before making a decision on renter’s insurance:
What does rental insurance generally cover? “In addition to protecting the replacement cost of your property, your personal liability is also covered,” says Dan Weeden, a Seattle-based insurance and risk management consultant with over 22 years experience in the industry. Liability alone is a good reason to sign on the dotted line. “I don’t see any “cons” to having rental insurance – only “pros”.
What sort of policy is best? Hirsch says that a business owners' policy combines several of the basic insurance coverages typically needed by a small business – all into one standard package. “The coverage generally consists of property coverage, liability coverage and some additional types of coverage that most small businesses require,” she explains. “It’s all under the rental insurance umbrella.”
Don’t forget business income insurance. While liability coverage may be the most important component in your business rental insurance plan, a business income component, under the liability portion of your renters insurance, can cover any losses incurred that closes your business for a short period of time. “Business income insurance will reimburse the company for any income you would have earned if you have a flood or a fire or other insurable event,” adds Hirsch. “Typically, business income coverage is payable up to one year for insured losses,” says Hirsch.
What does it cost? While prices vary depending on the insurance company – and the insurance needs of your small business, a good, comprehensive renter’s policy can be had for under $30 a month – or about $350 annually as a rule of thumb. That gets you the property, liability, theft, casualty components and, with some carriers, auto and “valuable data” coverage (i.e., data lost from computers in a fire, flood, or other disaster).
Are there eligibility limits? Historically, insurers were reluctant to offer rental coverage in one comprehensive policy to firms making too much money – but those restrictions are easing now. “For us the cutoff is $5 million - anything above that won’t qualify for a business owner policy,” says Hirsch. “That said, we’re seeing many insurers lower their financial restrictions, primarily because demand is so high from businesses.”
What if I have to make a claim? The trick is to keep good records – and copies of those records in a safe place. Always have a thorough inventory of all your business equipment and its value. Update that list annually. That’ll give you a good handle on how much coverage you’ll need – and how much you’ll get on an insurance claim. It’s also a great idea to back up your key records remotely . . . just in case.
Years ago, Fram Oil Filters had a catchy television ad with an old-school car mechanic that always ended with the phrase, “you can pay me now . . . or pay me later.”
It’s a phrase that business owners should take to heart when they consider buying rental insurance.
