The Three Most Common Pitfalls in a Commercial Insurance Policy
June 21, 2018
Do you know if your commercial insurance policy is giving you proper coverage?
Even though commercial policies can be complex, there are some key things to look for in your policy that are the cornerstone of your coverage. A properly designed policy will correctly write these areas and provide full coverage in the event of a claim, whereas a poor policy may have them excluded or omitted entirely.
What should you be looking for? Here are three common pitfalls to avoid in a commercial insurance policy:
Underinsured with Co-Insurance
When most people hear the term co-insurance, they think about a visit to their doctor's office. However, in commercial insurance, co-insurance is the percentage of value you are required to maintain on your property.
Let's look at an example. If your building is valued at $2 million and has an 80% co-insurance clause, you must insure the building for at least $1.6 million ($2,000,000 X 80% = $1,600,000). If the property is underinsured, say at $1 million, a substantial penalty will apply in the event of a claim. Not only are you underinsured, but the penalty reduces your coverage even more! A good policy will cover your property at the appropriate levels and even eliminate the Co-Insurance penalty all together.
Property or auto titling can be another potential pitfall. Many companies set up a separate LLC for their building/property for tax purposes. Sometimes, an agent may miss this separate company and omit it from the policy. In the absence of this insurable interest, a claim for the building/property may be denied.
The same scenario can happen with a business automobile. Typically, a commercial auto policy is written to provide coverage for the company vehicle. However, if the vehicle is titled to the insured personally instead of the business, a claim for the automobile may be denied. A good insurance agent will always ask about your property/auto titles and write the policy accordingly for proper coverage.
As the old saying goes, "The devil is in the details." It is no secret that commercial insurance policies come with many exclusions. We highly recommend that you carefully read the exclusions in your policy and talk to your agent if you have any questions.
For example, one common exclusion in any commercial insurance policy is exclusion of design and engineering work. Suppose you are the owner of a machine shop that designs, engineers, and manufactures parts completely in-house. If a claim arises which relates to the design and/or engineering of the parts, coverage will be denied. A good agent will make you aware of important exclusions before you purchase a policy and work with you to cover what you need.
Are you still having trouble determining if your commercial policy has proper coverage? Contact us today!