Business Rental Insurance and Why You May Need It

Kelly Boyer SagertUpdated November 23, 2021

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

If you rent commercial property or lease office space to run your business, you’ll likely want (and may, in fact, be required) to get business renters insurance. While landlords generally carry property insurance for their buildings, they typically won’t take responsibility for any expensive business property a tenant keeps in the space. Business renters insurance can cover the repair and replacement of business assets, like furniture or equipment, in the event of a fire, theft, or vandalism. It can also cover legal or medical costs related to any accidents that take place on the premises. If you’re just starting your company, this type of business Insurance can be especially important, since you may not lack the cash to cover an unexpected event or loss.Here’s a look at how business rental insurance works, what it covers, plus how to get the right coverage for your business at a cost you can afford.

What is Business Rental Insurance?

Business rental insurance (also known as business renters insurance or commercial renters insurance) is a type of insurance that small business owners purchase when they lease or rent a space for their business that they do not own. It is separate from the insurance that the property owner has for the actual building. Business renters insurance policies are typically a combination of a general liability policy that covers basic accidents and disasters and a commercial property policy, which covers items, supplies, and equipment you may keep inside a rental location.

What Does Business Property Insurance Cover?

Business renters insurance policies typically cover damage or destruction of property due to fire, vandalism, adverse weather conditions, and other common risks. It also generally includes insurance against theft of your business assets. The type of property that is covered typically includes office equipment, manufacturing equipment, inventory, business records and, in some cases, cash. Business rental policies also often include premises liability coverage, which protects you in case you are liable to your landlord for damages to the property. Liability coverage also helps to protect your business from claims that may be filed if a person is injured on the premises — a type of coverage that is sometimes referred to as a “slip and fall” policy.What’s not covered? A standard business rental policy might not cover flood damage. If you operate in a location where floods are common, you can choose to purchase additional coverage for flood damage. Coverage for your employees' possessions may also require an additional policy rider, although some policies do include some protection of this type. Another type of add-on you may want to consider is business interruption insurance, which reimburses you when you can’t operate your business due to theft or property damage.

How is Insurance Cost Determined?

The cost of your business renters insurance will depend on a number of factors, including:

The size of your business
The type of business you have
The location of your business
The number of people you have employed
The value of your equipment
Your claims history, if any

Larger businesses, with larger rental spaces, are typically more vulnerable to risks, and tend to have to pay higher premiums. Getting additional coverage will also increase costs. Your premiums will likely also depend on the typical risk factors that insurance companies use to determine policy prices. These include fire risk, based upon how the building where you are renting is constructed, whether it has a sprinkler system, and its distance from a fire station. Properties in high-crime areas often incur higher premiums for theft insurance, as do businesses that have particularly valuable or desirable inventory or equipment.Another factor that can influence cost is whether you choose “replacement cost” or “present value coverage” for your equipment and inventory.

Replacement cost coverage is typically more expensive, but it will reimburse you for the full amount you need to buy new items.
Present value coverage reduces the amount you are paid by taking into account the age of your damaged or stolen property (known as depreciation).

Why Do Landlords Require Liability Insurance as Part of Your Lease?

If you lease space for your business, the landlord will likely require you to have your own liability coverage. The reason is that if someone gets injured inside the space you rent, the landlord’s business insurance may not cover it. It’s generally in the landlord’s best interest that your business has the financial and legal resources to address the situation. If an injured person sues, for example, the case could get quite expensive — and, with your insurance company’s attorneys defending your case, this helps your business financially and also protects the landlord from needing to become involved. When tenants are adequately protected by a business rental and liability policy, it can save the landlord time, money, and hassle.If you are looking to rent a space for your business, it can be a good idea to get clarity from the landlord about what is covered under their business property insurance and what type of property and liability cover they require tenants to have.

What Types of Businesses Need Property Insurance?

Nearly every small business that rents or owns business space needs business property insurance. The reason is that it helps to protect not only the space you operate in, but also your equipment, belongings, employees, customers, vendors, and visitors who spend any length of time in the building. Plus, depending upon how the policy is structured and what it includes, it can also provide a range of legal and financial protections, such as reimbursing you for any interruptions to your business due to an unforeseen event.

How to Find the Best Insurance Policy for Your Business

If you’re starting a small business or you’re moving to a new commercial space, it can be a good idea to shop around for the right rental insurance policy, keeping your business assets, risk tolerance, and what coverage is required by your lease in mind. Even if you’re still negotiating your business lease, you may want to start researching your insurance options. Some ways to get started include:

Consulting directly with an insurance company. You can work with a company directly to build a policy that fits your needs. You may want to call two or three and compare costs and coverage options.
Searching the online marketplace. You can use online marketplace platforms to get quotes and compare multiple carriers that offer business renters insurance.
Using an insurance agent or broker. They can give you access to quotes from multiple carriers and help you navigate through different policy options.

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How Does Insurance Factor Into Your Small Business Loan?

Some small business and rental property business loans actually require you to have a certain amount of insurance coverage.Just like a landlord, a lender will typically want to know that you’ll have the necessary resources to navigate a natural disaster, slip-and-fall lawsuit, or other financial or legal challenges and still make your loan payments and continue to run your small business. The lender may regularly check to make sure the policy is still in place.

The Takeaway

Getting business renters insurance can be an effective way to secure your rented business space from any unforeseen circumstances and allow for financial stability. A good business renters insurance policy will not just protect you and your employees from any sort of loss or injury, but can also help cover any legal or medical expenses that might come your way. While your landlord might have their own insurance policy in place, that policy can have limitations that could end up costing you a large sum of money. Your landlord may also require you to have business rental insurance.In addition, you may need to show proof of business rental insurance in order to get a small business loan. Looking to take your business to the next level? Compare small business loans using Lantern by SoFi’s fast and easy platform.

Photo credit: iStock/ljubaphotoThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1021217

About the Author

Kelly Boyer Sagert

Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.

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