Some people and companies can self-insure their assets, but most of you need to purchase insurance to protect your valuable assets in the event of a catastrophe, whether the event results in a partial or total loss. Lessor’s risk insurance does that for building owners. If you own commercial property, lessor’s risk insurance will protect your business and personal assets from any issues arising from the legal activities your tenants do on site.
You use lessor's risk insurance to insure commercial buildings you own or co-own, such as office buildings or warehouses. If a tenant, their employees or their customers have an incident on the premises, lessor's risk insurance covers it. The insurance provides you with both liability and property damage coverage. The liability coverage will pay the medical bills and care for whoever is injured -- even if a serious disability, dismemberment or death occurs. The liability will also protect you from any lawsuits that result. The property damage will pay for any property repairs or replacements.
If you do not have a lessor’s risk policy, or have a policy with limits that are too low, you could end up using your own hard-earned money to pay for the medical or legal bills resulting from an accident on your property. Lessor’s risk differs from property insurance and general liability on your building. If your building’s electrical system shorts out and causes a fire, or if the sewer backs up and floods an office, your building hazard insurance covers this. Lessor’s insurance protects you from the actions of your tenants and anyone associated with your tenants.
If a delivery truck delivering something to a tenant crashes into a customer’s car, the delivery company should pay for all the damages. If the delivery truck driver claims he swerved to avoid a pothole in the parking lot, then you could be responsible for repairing both the truck and the customer’s car. Your lessor’s insurance policy would pay for both.
The amount of coverage you need depends on the size of your property, the number of tenants you have and how much foot traffic and tenant turnover there is. Some insurers will charge a lower rate if your building is full or nearly full because empty buildings encourage vandals and squatters. If you own a well-maintained office building, you will pay a lower rate than if you own a warehouse because there are fewer opportunities for injuries or vandalism.
Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.