How to Reduce Your Commercial Real Estate Property Insurance Costs

Nov 3, 2016

Many investors underestimate the cost of insurance for their income property.

Unfortunately, this can lead to quite a surprise later on when the investor sees the actual cost of the insurance. Instead of basing a property insurance guesstimate on what you think is a similar property, it would be a better idea to understand from the start that not all properties are the same.

Once you understand the differences between even similar properties, you’ll be on the road to reducing your insurance premiums – thereby increasing your income property’s net profits.

Here are some strategies you can take advantage of to reduce your investment property’s insurance.

Shop Around For The Best Coverage

Don’t feel compelled to take the first quote you receive. Premiums can differ greatly from company to company for the same coverage. You’ll get better service and a better discount if you speak to an agent personally. They’ll not only be able to answer any questions you have, but they will also be more motivated to offer you a discount than a chatbot on a random website.

Look For A Higher Deductible

The higher your deductible, the lower your monthly premiums. In order to cut the cost of your monthly payments, determine how much coverage you’ll actually need, and go for as high of a deductible as you can safely manage.

Insure The Property, Not The Land

reduce your insurance costs by insuring your property not your land

Sometimes your insurance covers both the land and the investment property. However, since it’s unlikely you’ll need to insure the land, you can cut costs by ensuring your insurance covers only the property.

Keep in mind that a policy that pays you for the actual cash value of the property will only reimburse you for the cost of rebuilding the property at the current market value. Actual cash value is calculated by figuring the replacement cost and deducting any depreciation from that figure.

Thus, unless your property is brand new, you will inevitably be left holding the bag if your property needs to be completely rebuilt, or even renovated.

On the other hand, a policy that covers replacement costs will cover the full cost of rebuilding or replacing the property with another property of comparable quality and material. Depreciation costs are not subtracted.

Check For Discounts

Insurance guidelines and policies change frequently, so it pays to shop around for a policy that offers you discounts or better rates than your present one. Even if a particular carrier denied coverage one year, they may still approve coverage this year.

check for discounts


You can get discounts for having continuous coverage without any lapses. Letting a policy lapse can increase your insurance premiums. By letting your premium lapse, you are viewed as higher risk. It will take a year or more until your premiums go back to your previous rate.

You can also receive a discount for installing certain systems that lower the risk of damage to the property. Some examples are a sprinkler system, central alarm system, on-site property management, or updated utilities. You may also be eligible for a discount if you insure more than one property with the same insurer, or consolidate properties presently being held by more than one carrier.

It also makes sense to update rental income, space usage, and property values on a regular basis. It is not uncommon for investors to rely on measurements from the previous owner; however when space is re-evaluated according to BOMA’s recommended standards.

Don’t Insure Your Tenant’s Belongings

Whether you own an office, a multi-family, or another type of commercial income property, there is no need for you to ensure your tenants’ personal belongings. Instead, exclude tenants from your policy, and add a clause in the lease that tenants be required to pay for their own coverage if they desire to be covered.

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