You’ve signed your lease and are excited about getting your business started. Before you can, however, you need to check the lease’s requirements for general liability insurance. Most landlords require it, and you’ll need it in place before you start business operations. Here’s what you need to know about a lease requiring general liability insurance.
Why Your Commercial Lease Requires You To Have General Liability Insurance
Obviously, landlords want good tenants. This means that they are responsible and take reasonable actions to reduce risk. But not every tenant automatically does. This is why landlords require you to obtain a general liability insurance policy. The landlord wants protection against your risks. If someone were to have an accident or incur an injury on the business’s premises, the landlord doesn’t want to be on the hook for the liability. The general liability insurance policy serves as a way for the landlord to be protected.
For example, if someone slipped and fell in your business and broke their hip, the injured party could sue the business and the landlord for his medical bills and other damages. The landlord is protected in such a case because the general liability policy will pay for the claim. Landlords rest assured that the business will handle any losses and won’t work their way up to the landlord.
How Does the General Liability Policy Protect Landlords
As part of the lease agreement, the landlord will require more than just having a general liability insurance policy. He will require that you name the landlord as an additional insured. Being an additional insured means that your policy names the landlord on the policy through an endorsement.
The additional insured endorsement is how you add the landlord to the policy. As an endorsement, the landlord isn’t a named insured, meaning he doesn’t have a right to manage the policy. He only has protection through the policy if there is a claim made via your business naming him as the responsible party. He gets the benefit of protection up to the policy limits. So if the policy has a $1 million liability limit and there is a claim, the policy protects both you and the landlord up to that $1 million limit.
Protecting Against Damages To Premises Rented To You
Another reason the landlord wants you to have a general liability policy is to protect the property itself. If something happens to the property, the landlord wants to make sure that the property will be fixed and restored to its original rentable status. For example, the general liability policy will pay to repair the property if you have a fire on the property. This allows you to get back to business sooner and protects the landlord’s interest in the property.
Once again, the policy is good up to the policy limits. This means that you should get a policy with high enough limits to rebuild the property after a complete loss. Landlords will often require you to have at least $1 million in liability coverage, though your lease may have other terms and requirements.
Proving You Have General Liability Insurance
Once you have a policy in place, you will need to provide the landlord with proof of insurance. You don’t accomplish this by sending the landlord a copy of the policy. Instead, you show the landlord your proof of insurance by providing a certificate of insurance (COI). The certificate of insurance is a form created by the insurance company that lists your coverages and who is covered by the insurance. It will list you as the named insured, and the landlord as the additional insured.
A certificate of insurance is available from your insurance company by request. They won’t send it automatically when you obtain insurance. Some insurance carriers may even charge for a certificate of insurance.
Why You Should Want a General Liability Insurance Policy
Just because the landlord requires this insurance policy doesn’t mean that it isn’t a good idea to have one in the first place. A business should want to get general liability insurance since it protects against some of the most common and costly claims that can happen. When businesses don’t have liability insurance, they are at financial risk of being responsible for the claims. This can burden the company financially, possibly leading to bankruptcy if the claim is large enough.
Think about it, a slip and fall claim might cost anywhere from $10,000 to $50,000 or more if the person was seriously injured. Most small businesses don’t have an extra $50,000 sitting around to deal with a claim. This is why you buy insurance. It’s a small manageable monthly fee to cover the high expenses of common claims.
Replacing General Liability Insurance with a Business Owners Policy
As a business owner, you want to keep costs down wherever possible. This is a given. But you also want to protect your business in case of a loss. This means that there are often two insurance policies that business owners get: the general liability policy and the commercial property policy. The commercial property policy protects your business’s assets from losses such as fire or theft.
When you get a general liability policy and a commercial property policy independently, you pay for each policy. You can reduce this cost by getting a business owner’s policy (BOP). The business owner’s policy covers both general liability and commercial property in a straightforward policy. Because the risk only needs to be underwritten once, the policy is less expensive than getting two policies separately.
By getting the business owner’s policy, you can satisfy your landlord’s requirements, protect your assets in the process, and streamline your insurance costs. You can get a business owner’s policy for as little as $50 per month.
An Example of Needing Insurance
Like any business, a tattoo shop has risks associated with running the company. Like any business, someone could slip and fall, leading to injuries and claims against the company. When the tattoo shop leases its space, the landlord will require a general liability insurance policy to cover these types of losses. But these aren’t the only types of losses that a tattoo parlor can have.
For example, a tattoo and piercing parlor may do a piercing on an individual. If that individual becomes sick because of the metal used in the piercing, they could sue. This type of lawsuit is covered by the products liability portion of the general liability insurance. Products liability pays for the medical bills of someone injured from a product that you sold.
Of course, there is also the potential damage to the building that the landlord wants to protect as well. If your tattoo parlor had a pipe burst in the bathroom, leading to water damage to the walls and floors of the building, you need to fix this as quickly as possible. The general liability policy will pay to fix this loss, restoring the building to its originally rented state and making it possible to conduct business again.
While you may be satisfying a lease term at first when you obtain a general liability policy, at the end of the day, it’s a good thing for your business to have, and you’ll be glad you have the policy when a claim arises.
