Nonprofit Insurance Checklist: Property Insurance – Your Real Property (fancy for ‘buildings’)

This post is part of an occasional series that walks through our nonprofit insurance checklist. If you’d like to go through the checklist yourself, I’m happy to send you a copy or schedule some time on the phone. 

Photo Credit: Onasill via Compfight cc

Photo Credit: Onasill via Compfight cc

As a second career insurance man (meaning simply that I was formerly a liberal arts trained minister and urban outreach professional), I’ve laughed at some of the terms we use.

“Real Property” is such a term. Isn’t all property real?

It is. Yes.

But for the purpose of the nonprofit insurance checklist, real property means this: fixed property, principally land and buildings.

To drill down further, real property as far as property insurance is concerned refers to buildings. 

To relate it to your personal insurance, your ‘Real Property’ would be your house and any other stand alone structures like a garage or other outbuilding.  Land isn’t insured, per se, on a property policy, so let’s stick with buildings.

How Do You Know If You Need Insurance for “Real Property”?

The two typical scenarios where you’d need insurance for real property are these:

  1. You own buildings
  2. You rent, but your lease requires that you provide insurance for the building

Pretty simple, no?

If you can say ‘Yes that’s me!’ to either of those situations, then you need property insurance for your building(s).

Do You Really Need Property Insurance on Your Buildings?

If you’re flush with cash in the bank and own your buildings outright, then no, you don’t, technically have to have property insurance. I would argue that you’re not making a smart decision if you go without it, but it’s your stuff… do as you please.

Most of us have an easier time planning for the expense of building insurance vs. the expense of a major loss should one of those tornadoe or fires or some other horrible accident cause damage to our buildings.

I’ve had two clients with claims over $80,000 during a recent winter. Neither of those clients could have weathered that steep of a claim without major duress. It’s tough enough to deal with a claim when you have the insurance.

Of course, when there’s a mortgage, you’ll be required to have building insurance. Often, a contract is the prime driver for insurance. Proper property insurance is no different.

Some Considerations When Purchasing Property Insurance

Limits

I don’t want to go into the mathematical acrobatics that is ‘coinsurance’, but always insure your buildings as close to replacement cost.

There is a potential penalty if you under-insure your structures. If you have a partial loss, you might only get partial payment. Ask your insurance agent about the specifics. The concepts of coinsurance and coinsurance penalties are much more appropriately explained in a one-on-one setting.

Deductibles

You can save some cash by choosing higher deductibles. Just make sure that you have a good emergency fund to handle small claims. If your deductible is $5,000 and you only have $5,500 in the bank, then you’ll be pretty upset.

If you have $100,000 in the bank, then a $5,000 deductible makes sense. For most small nonprofits, $500 or $1,000 is worth the little bit of additional premium. For larger nonprofits, higher deductibles make sense.

Questions?

Insuring your building(s) is a pretty straightforward proposition.

To keep costs low and the likelihood of claims lower, you’ll want to consider non-insurance risk management options like central station alarms, sprinkler systems, and regular maintenance contracts and checkups.

Over time, preventative maintenance will keep your insurance costs lower as the likelihood of claims stays at a minimum and your track record of good management makes you a more attractive risk.

Please drop a note in the comments if you have any questions!

 

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