Understanding Commercial Insurance for Your Inn

Identifying the correct insurance policy to cover your Bed & Breakfast can be an overwhelming, stressful task. Key insurance terms may leave you confused and feeling unsure of your coverage. Here are the different commercial insurance policies and their purposes. Let this guide help you with the terms to select the proper coverage protecting you and your Bed & Breakfast business. 

 Let’s begin with what most standard insurance policies include. The standard insurance policy, or “package,” is divided into two sections: property insurance and casualty insurance. Here are the fine details to help you steer through the terms and define the coverage available. 

Let’s Talk Property Insurance

Commercial property policies protect business properties and the contents inside the property against any losses like fire, theft, or destruction. Determining the correct replacement cost amount for your building and contents is key to selecting the appropriate limits. To find out the rebuild value of your building, ask your insurance agent or real estate agent to recommend a method, or you can have a professional appraisal conducted. Keep in mind, any items used to service or maintain the building – such as dishwashers, freezers, attached light fixtures – are included as building replacement.

For content replacement costs, visually scan each room and come up with the dollar amount it would take to replace everything in that room at today’s prices. Do this in every room of every building. You may want to use a video camera to record the interior and exterior of every room of every building, providing a verbal description as you are filming. This serves as an excellent record of your assets and can help speed up the claims process.

Protecting your business against financial loss from perils is one of the main reasons to buy insurance for your Inn. Peril is the event insured against or the cause of possible loss. For example, a candle catches your Inn on fire. You choose the perils “package” that best suits your circumstances. There are three common choices:

1. Special Cause of Loss: The most comprehensive coverage form available. Protects you against every peril unless the peril is specifically excluded.
2. Broad Form: Limited coverage form. Protects your property against approximately 18 stated perils. Unless the peril is specifically stated in the policy, you do not have coverage.
3. Named Peril: Most limited coverage form. Protects your property against approximately six stated perils. If the peril is not specifically stated in the policy, you do not have coverage.

The insurance company will then determine how your property will be replaced if a loss occurs. There are typically two valuation choices.

• Replacement Cost Coverage: Pays for the loss without a depreciation deduction, up to policy limits. Unless there is a specific endorsement providing replacement cost coverage for your antiques, they will be depreciated. Antiques must be scheduled with a specific replacement cost amount in order to receive full value.
• Actual Cash Value Coverage: Provides replacement cost minus depreciation for your building and contents, up to policy limits.

What is Coinsurance?

Coinsurance is intended to encourage the insured to purchase and maintain adequate coverage. Most insurance companies will want the owner to insure their building for the amount it would cost to rebuild to ensure you get the most protection in the event of a total loss.

If a policyholder grossly underinsures their property, either accidentally or to save money on their premium, they may be subject to a Coinsurance Penalty. The coinsurance penalty only applies to partial losses in most states. It also applies to the building only. The contents in the home or a potential loss of income may not be applicable.

Loss of Income

Unlike other policies, innkeeper insurance offers income protection in the event property damage requires you to stop hosting guests temporarily. When loss of income protection is triggered by a covered event, the insurance company pays the cost of repairing your property and the income you lose while your property undergoes repairs. This coverage is written on varying forms, such as:

• Actual Loss Sustained: No coinsurance is applied; however, the coverage lasts only 12 months and the premium is based on your total sales figure.
• Monthly Indemnity: Gives you a certain percentage of your income each month up to an aggregate limit.
• Flexible Business Income Coverage: This coverage is on an actual loss basis, per occurrence with no aggregate, no coinsurance and no time limit. The business income coverage will pay until the end of the period of restoration or the business income limit you chose has been reached. Plus, you are rated on the limit of loss of income you purchase, not on total sales.

What Does Casualty Insurance Cover?

Casualty Insurance, also known as Commercial General Liability Insurance, covers a third-party liability claim unless there is a specific exclusion. It provides coverage to any business for bodily or personal injury and property damage that might be caused by the business’ operations. The insurance company provides a lawyer and pays for your defense. Commercial general liability includes:

• Aggregate Limit: The total amount available for liability losses paid in a single year – usually $1,000,000 or $2,000,000.
• Occurrence Limit: The limit for any one loss paid for a liability claim resulting from your premises, operations and products – usually $1,000,000. Applies per loss, not per person.
• Products & Completed Operations: Protects you from losses that develop after the guest has checked out
• Fire Damage Legal Liability: Used in a landlord/tenant situation. Provides coverage for fire damage to premises rented to you when the damage is caused by your negligence. Your fire damage limit should cover the value of the portion of the building you occupy in order to cover your exposure.
• Personal & Advertising Injury: Protects you from losses arising from invasion of privacy, defamation of character, wrongful detainment, libel and slander.
• Reservation of Rights: When a legitimate issue of coverage exists, the insurance company can serve the insured with a “reservation of rights,” indicating that it will investigate and defend the action while reserving the right to refuse to pay a judgment against the insured if a valid bar to coverage exists.

With a plethora of providers, policies, and coverage needs, insurance is something not to be taken lightly. Rest easy knowing that you have the best, most comprehensive coverage for your Bed & Breakfast. Speak with one of our CBIZ Innkeepers Insurance experts today!

This blog may contain scenarios that are provided as examples only. Coverage is subject to the terms, conditions and exclusions of the policy issued. The information provided is general in nature and may be affected by changes in law or the interpretation of such laws. The reader is advised to contact a professional prior to taking any action based upon this information.

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