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If you own a building and use it for the purpose of leasing retail, warehousing, office or personal space to others, lessor's risk insurance is an essential financial tool for protecting you against liability and property damage. It can help shield you from lawsuits if a lessee, or a customer of the lessee, sustains bodily injury on your property and rebuild your building and replace your income in the event of a fire. Core coverage includes liability and building coverages, but can also include loss of rents, crime, outside signs, equipment breakdown, floods, earthquakes and more.
Lessor's risk insurance protects you from losses, which includes damage and destruction of property, vandalism and theft. It only applies to the building and common area property you own. This type of insurance also protects you against claims for injuries to a lessee and its employees, as well as customers who visit the lessee's location during the course of business when you are found liable for the injuries. Keep in mind it only protects the lessor’s interest in the property, not the lessee’s. Each individual tenant should secure coverage on their business liability and office contents (e.g. furniture, computers, telephones etc.). This should be made mandatory in your lease agreement along with naming you, the lessor, as an additional insured.
When you purchase a lessor's risk insurance policy, you will choose coverage limits, which represent the most the insurance company will pay for a single loss. If a lessee's loss or bodily injury liability exceeds your coverage limits, you will be responsible for the difference between the cost of the lessee's loss and your lessor's risk insurance limits. Choose the highest limit you can afford in order to maximize your protection against lessee liability. A coverage limit of $1 million is typically sufficient; however, if you lease parts of your building to multiple tenants, or if your tenants engage in hazardous business activities such as manufacturing, you may need a higher limit.
In order to qualify for lessor's risk insurance, you must typically lease out the entire building or occupy no more than 25 percent of the building. Policies may cover multiple buildings and locations or just one. Also avoid using lessor's risk insurance as a substitute for business insurance coverages. These policies cover business liability to occupants for injuries not related to a lessor’s business activities and property located within the building not related to you the lessor. Each tenant should secure their own Business Liability and contents insurance and name the lessor as an additional insured on the policy.
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