Insuring Your Real Estate: The Basics

As a property owner, you put a lot of time and money into your building. The right insurance coverage helps protect that investment and shows lenders, tenants, and other stakeholders that you take risk seriously. It also gives everyone peace of mind, which can lead to better tenant relationships and a more stable investment. Here are some tips that we tell both new and experienced building owners looking to improve their insurance purchasing:

Understand Replacement Cost Valuation

One of the biggest pitfalls in real estate insurance is undervaluing your replacement cost. This is the amount it would take to rebuild your property from the ground up. If you set this number too low, you might save a little on premiums, but you can face strict penalties if you ever file a claim.

How Underinsurance Penalties Work

Let’s say you insure your building for only 80% of its true replacement cost. If you file a claim, your insurance company can reduce your payout by that same 20%. That can mean a much lower settlement than you need to get back on your feet.

Consider an Agreed Value Policy

An agreed value policy, sometimes called waived coinsurance, removes the insurance company’s right to penalize you for underinsuring. This can be a smart option if you’re concerned you might undervalue your property or if you just want extra peace of mind.

Instead of Lowing Values, Manage Costs With a Higher Deductible

Insurance premiums can add up, and you might be tempted to cut corners by underinsuring. Instead, you can save money by choosing a higher deductible. While you’d pay more out of pocket in the event of a claim, you’ll likely see substantial savings on your annual premium.

Why a Larger Deductible Helps

A 5% deductible can sometimes generate savings that mirror underinsuring your property by 20%. The difference? You’re paying a predictable amount if you have a claim, rather than risking a major shortfall in coverage. It’s a safer way to reduce expenses without sacrificing the protection you need.

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Know Your Deductible Tolerance

That brings us to our next point - know what the largest deductibles you can handle is before talking to insurance agents. There’s no one-size-fits-all approach to choosing this and should be centered around your tolerance for risk weighed against the cost of the insurance.

• High Deductible, Lower Premium: Ideal if you’re comfortable covering a larger share of smaller claims.
• Low Deductible, Higher Premium: Good if you’d rather let the insurance company bear more of the risk.

Have Your Building Info Ready

Insurers are basically betting that nothing bad will happen to your property. Before they take on that risk, they need specific details, including:

• Age and condition of the roof
• Electrical, plumbing, HVAC updates
• Building construction type (e.g., frame, concrete, or steel)

If you can’t provide these details, insurers might refuse to quote your building. Having everything on hand speeds up the process and often leads to more accurate pricing.

Don’t Forget Business Income Coverage

If a covered event damages your building, you could lose rental income or be forced to shut down operations for a while. Business income coverage helps replace that lost revenue while you’re getting back on your feet.

What It Covers

• Mortgage or rent payments

• Fixed business expenses

• Net income you would have earned if your property was operational

For many property owners, business income coverage is a lifeline that keeps financial stress under control during repairs or rebuilding.

Ordinance & Law Coverage Could Save You Big

Building codes change over time, especially in areas prone to natural disasters. After a covered loss, a local inspector might require updates or even partial demolition to bring your building up to code. Standard policies typically don’t pay for those extra costs.

How Ordinance & Law Coverage Helps

Ordinance & Law coverage steps in to cover expenses related to code compliance. This could include anything from structural upgrades to electrical rewiring. It’s often overlooked, but it can be a game-changer if disaster strikes.

Understand Your Risks

Depending on your location, certain hazards might be more likely than others.

• Wind and Hail
• Earthquakes
• Floods
• Crime
• Wildfires

Certain regions of the country have more exposure to certain perils. Knowing what your highest risk scenarios are will force you to consider how your policy will react and understand the deductible structure. The goal is have no surprises in a claim and to have that certainty for a reasonable price. Tailoring your policy to local risks ensures you’re your covered and optimized for your situation.

Look Out for Assault & Battery Exclusions

Assault and battery claims are more common than many property owners realize. If someone is attacked or injured on your premises and decides to sue, your policy might exclude or limit coverage. Make sure you know where your insurance stands on these situations. If necessary, work with an insurer that offers at least some level of protection.

Be Wary of Bargain Quotes

It’s easy to focus on premium costs, but drastically lower quotes can be a red flag. Some insurers might cut corners on coverage or have a questionable track record of paying claims. Others might be financially unstable. Always compare coverage details, read reviews, and ask questions about the insurer’s reputation before signing on.

Bottom Line

Insuring real estate is about more than meeting a lender’s requirement. It’s about safeguarding your property, protecting your cash flow, and staying prepared for life’s unexpected twists and turns. By choosing the right replacement cost, selecting an appropriate deductible, and adding coverages like Ordinance & Law or Business Income, you can rest easy knowing you have a policy that truly meets your needs.

Have questions or need a second opinion? Give us a call. We’ll help you build a comprehensive plan that fits your budget—without leaving your investment exposed.