Blanket Property Insurance
For Real Estate Investors with multiple locations and/or buildings, Blanket Property Insurance is a great way to cover your properties with one large property limit equal to the combined total of all of your property limits added together. Then when you have a loss, you are not capped by the limit of the individual property because you have the total limit from all of your scheduled properties from which to draw. You can Blanket one or more locations, be limited to a specific property type, or apply to multiple property types, i.e., buildings, contents, and business income.
Benefits of a Blanket Property Insurance
The benefit of a Blanket Property Insurance limit is to ensure that you have enough coverage to rebuild when you have a loss. When you have a claim, the entire blanket limit shown on the policy is available to use for the coverage type shown in the declarations. Blanket Property Insurance eliminates your concern of not having enough to rebuild for an individual location when you are trying to rebuild after a claim.
This extra Blanket Property Insurance coverage can be a huge benefit when you have a claim. This blanket includes economic conditions present due to market issues like a:
This extra Blanket Property Insurance coverage can be a huge benefit when you have a claim. This blanket includes economic conditions present due to market issues like a:
- Pandemic,
- Catastrophic local damage,
- Material shortages,
- Or a construction boom that causes the repair or replacement cost to be greater than the estimated replacement cost used to set the limit on the policy when you purchased the policy.
How underwriters establish a Blanket Property Insurance limit
To establish a Blanket Property Insurance limit, the underwriter will require a statement of values, SOV, that reflects all of the locations and limits for each property type to be included. From this, the underwriter will establish a total limit, the sum of each location, and property type where coverage has been requested. The rate charged is a blended rate of all the property covered.
Types of Property
The different types of property to consider when establishing Blanket Property Insurance coverage can include one, two, or all of the following:
- Building
- Business Personal Property
- Business Income
Building
The definition of building includes:
- Completed additions
- Fixtures, including outdoor fixtures
- Permanently installed machinery and equipment
- Personal Property owned by you that is used to maintain or service the building or structure or its premises
Business Personal Property
- Furniture and fixtures
- Machinery and equipment
- Stock
- All other personal property owned by you and used in your business
Business Interruption
- Net income that you would have earned. The reference point will be current leases.
Potential Problems
The reason to use a Blanket Property Insurance Limit is to eliminate potential limit problems when you have a claim. The insurance company can place different endorsements to limit your claim. Some of the conditions or endorsements that limit coverage include:
Coinsurance Penalty
Coinsurance PenaltyTo encourage insurance buyers to insure to value, the insurance company uses a coinsurance penalty for when you fail to insure to value. The coinsurance clause stipulates the percentage amount of Blanket Property Insurance coverage needed in relation to the replacement cost of the property at the time of loss.
The coinsurance formula is:
Coverage amount purchased (DID)
Divided by
Coverage amount needed (SHOULD) X Amount of loss
Coinsurance is usually written at 80% to 90%
The coinsurance formula is:
Coverage amount purchased (DID)
Divided by
Coverage amount needed (SHOULD) X Amount of loss
Coinsurance is usually written at 80% to 90%
Example of Blanket Property Insurance:
1. You purchase$400,000ofBuildingInsurance
2. You suffer a fire loss that causes $200,000 in damages.
3. The Cost Estimate is $600,000 for the entire building
4. Your policy has a 90% coinsurance clause.
DID $400,000 / SHOULD ($600,000 x 90%) $540,000 = 74%
So $200,000 x 74% = $148,000
2. You suffer a fire loss that causes $200,000 in damages.
3. The Cost Estimate is $600,000 for the entire building
4. Your policy has a 90% coinsurance clause.
DID $400,000 / SHOULD ($600,000 x 90%) $540,000 = 74%
So $200,000 x 74% = $148,000
Blanket Property Coverage and Coinsurance
The Coinsurance still applies to a Blanket Property Insurance Limit policy in that you are required to meet the coinsurance limit across the total of all values. So, if you are a little low on one building and a little over-insured on another, the likelihood of you suffering a coinsurance penalty is reduced.
How to eliminate Coinsurance:
When you purchase the optional Agreed Amount Option, the Coinsurance Penalty is suspended. The underwriter requires a Statement of Values to be signed at the beginning of each policy period to add the Agreed Amount. Failure to provide a signed Statement of Value at renewal will reinstate the Coinsurance Clause.
NOTE:
Blanket Property Insurance Limits are a way to protect against not having enough limits for a covered claim. It is not a cure-all for when you suffer damage caused by a peril your policy excludes from coverage. To collect, you must suffer damage caused by a covered peril.