Premiums

While you policy-shop, remember that the premium is based upon the risk the provider associates with the property, and how the space is used. While rates for a commercial property will most likely be higher than those for a residential space, providers look at a host of other issues when determining the cost of your premium, including:

• Is the building owner-occupied?
  
• Does the building have a single tenant, or many?
  
• How will the space be used (residential vs. commercial)?
  
• Are security and safety systems in place (sprinkler systems, security guards, etc.)?
  
• What is the building's age and location?
  
• What is the building's proximity to emergency services such as fire stations?
  
• What other types of businesses and organizations are in the building?
  
• What types of activities will occur in the building?
  

The insurance provider will also examine your claim history and the number of years you have been with the company. Taken together, these factors will influence the type of insurance package you purchase, and the amount you must pay for the coverage.

Other major factors that influence the cost of your premium include:

Amount of the Deductible: The deductible is the amount you pay when a loss occurs. For example, if you have property insurance with a deductible of $500, and a camera worth $950 is stolen, you pay the first $500 and your insurance will cover the $450 remainder. Typically, a higher deductible translates into an overall lower cost for the policy. Considering that you may only make a claim when a major issue arises, a high deductible may be a good option when obtaining coverage.

Replacement Cost vs. Actual Cash Value: Let's consider the same camera, which you bought new for $950 four years ago, which has depreciated in value and is now worth only $650. Due to inflation, it would cost $1,200 or more to purchase the new model. With a replacement cost policy, you will be covered for the full cost of replacing the item with a similar item of the same type and quality. In other words, the insurance provider will give you $1,200 to spend on a new camera.

An actual cash value policy will only reimburse you for the value of the item at the time it was stolen or damaged. In this scenario, you would only be reimbursed $650 for the camera; $550 short of what you need in order to replace the stolen item with one of comparable performance and value.

Premiums for replacement cost insurance are more expensive, but depending on the cost of replacing your equipment, might be worth the expense. Even with a replacement cost policy, however, the policy might have payment caps that limit the maximum costs you will be reimbursed per incident on any particular item. Using the above example, although it costs $1,200 to replace the camera, if the policy has a limit of $1000 per incident for each camera, the most you could collect is $1000.

Occurrence vs. Claims Made: Another clause that affects the cost of your policy is whether your coverage is a claims-made or occurrence policy. The primary difference between these two types of coverage deals with the timing of filing claims. With a claims-made policy you must file your claim during the time period that coverage is in effect. For example, say you only have two weeks left on your policy when a major storm hits, knocking a tree on your roof, which requires the entire roof and bay window to be replaced.

In order for you to be covered by a claims-made policy, you would have to file the claim before the plan expired in two weeks. However, suppose the storm caused structural damage that you did not discover until months after the policy ended. If you were covered by an occurrence policy you would be protected, because the incident occurred while your policy was in effect.

Again, a claims-made policy would not cover the damages because you discovered the problem and filed the claim after the policy ended. As you can imagine, the ability to go back months, even years to file a claim on an expired policy comes with a significant difference in price.