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Why Commercial Property Owners Shouldn't Rely on Tenants for Insurance

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Why Commercial Property Owners Shouldn't Rely on Tenants for Insurance

Owning commercial property in Australia offers exciting investment opportunities, but it also comes with responsibilities. Ensuring your investment property is adequately protected is crucial, and a key aspect of this is having the right insurance coverage. While your lease agreement might state that the tenant is responsible for covering the cost of insurance premiums, it is critical that you, the property owner, retain control of the insurance policy itself.

Here’s why relying on your tenants to arrange the insurance for your commercial property can be risky:

1. Misaligned Coverage: Tenants prioritise their own needs and may not choose a policy that adequately protects your commercial property. They might opt for a cheaper policy with limited coverage, leaving you vulnerable in case of claim. For example, they may reduce the indemnity period under the loss or rent cover. The tenant may also go with a lower replacement building sum insured leaving you underinsured and exposed in the event of a claim.

2. Lack of Control: While it may seem convenient to allow your tenant to handle property insurance, doing so relinquishes control over crucial aspects of coverage. The tenant might choose inadequate coverage limits, leaving you exposed to significant financial burdens in case of a major claim. Additionally, if the policy lacks proper endorsements or exclusions, you could face legal costs associated with disputes arising from the claim.

3. Tenant Turnover: Commercial tenants come and go. Relying on each new tenant to arrange and maintain appropriate insurance creates a disruptive cycle of policy changes and potential gaps in coverage. This can leave your commercial property exposed during transitions and lead to complications in the event of an insurance claim.

4. Potential for Errors and Omissions: Tenants might not have the expertise or experience necessary to select the right insurance coverage for your specific commercial property. An unintentional error in their insurance declaration process could lead to the insurer declining a claim. For example, if the tenant fails to declare to the insurer that the building has an asbestos roof.

5. Difficulty in Managing Claims: If an insurance claim needs to be made, having the tenant manage the process introduces additional complexities and potential delays. Communication breakdowns or disputes between you and the tenant can hinder the claim settlement process, impacting your ability to recover from the loss efficiently.

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The Benefits of Maintaining Control:

Taking charge of your commercial property insurance is essential for protecting your investment. Entrusting tenants with this responsibility can lead to inadequate coverage and financial risks. By retaining control of the insurance policy for your commercial property, you gain:

· Peace of mind: Knowing you have chosen the right coverage with adequate protection for your valuable asset, including comprehensive types of coverage.

· Control over coverage: You can tailor the policy to your specific needs and risk profile, ensuring it aligns with your financial goals and risk tolerance.

· Streamlined claims process: Any claims are handled directly between you and the insurance company, eliminating potential delays or complications.

· Continuity of coverage: Maintaining the policy yourself eliminates gaps in coverage during tenant transitions, ensuring your commercial property remains protected at all times.

Partnering with an Insurance Broker:

Insurance Brokers understand the unique needs of commercial property owners. They can assist you in:

· Conducting a thorough risk assessment to identify potential threats to your property.

· Obtaining competitive quotes from various reputable insurers.

· Selecting the right insurance policy that offers comprehensive coverage at an affordable cost.

· Reviewing and updating your coverage as your needs or the property value changes.

Don't leave your investment vulnerable. Contact your insurance broker and discuss how they can help you secure the right insurance for your commercial property. By taking control of your insurance, you can safeguard your investment and achieve greater peace of mind.

Disclaimer: This blog is intended for general informational purposes only and does not constitute professional insurance advice. We recommend consulting with a qualified insurance broker like FD Beck to discuss your specific circumstances and obtain tailored solutions.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.

FD Beck Insurance Brokers, ABN 68 004 455 038, AFSL 233784

This article originally appeared on Why Commercial Property Owners Shouldn't Rely on Tenants for Insurance and has been published here with permission.