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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