Here’s Why The Lowest Price May Not Be The Best Deciding Factor

What do you look for when you buy insurance?  Normally price is the most important deciding factor, but is it the wisest decision?

What if two quotes on a $550,000 commercial building are as follows:

Option One – Building 550,000, Contents 25,000. Replacement cost coverage on building and contents. 1,000,000 Liability and 5,000 guest medical. $1,000 all peril deductible. Premium: $2495 per year.

Option Two – Building 1,000,000, no contents coverage. Replacement cost coverage on building.  1,000,000 Liability and 5,000 guest medical, with a 1% deductible.  Premium: $1,895 per year.

If one looks at premium cost alone, option 2 seems to be the winner. However, if you consider that the building is valued at $550,000 you need to question why the building limit on option 2 is set to 1,000,000.  Also, in the event of a covered loss, option 1 carries a $1000 deductible whereas option 2 carries a $10,000 deductible. Therefore, any premium savings realized with option 2 is eliminated in the event of a covered loss.  Since we buy commercial property insurance to cover losses, Option 1 is a better buy.  It may be possible to secure additional savings on option 1 by utilizing a $2,500 deductible.

In any case, we recommend against over insuring property.  We also weigh the benefit carrying a $10,000 deductible on a property, especially when it creates a high out of pocket expense for a business during a covered claim.


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