Commercial habitational buildings are properties rented out to tenants for residential purposes. These buildings require specific insurance coverage to protect the property owner from financial losses from accidents, damage, or lawsuits. Note that every risk is different, and you should work with a licensed insurance broker specializing in property rented to others to ensure you are appropriately protected. 

The following are some types of insurance coverage necessary for commercial habitational buildings in Illinois:

Property Coverage: This type of coverage protects the building and its contents from damage caused by fire, theft, vandalism, and other covered perils. Property coverage can be divided into two types: Building Coverage and Business Personal Property Coverage.

Building Coverage: This covers the physical structure of the building, including walls, floors, roofs, windows, and doors. Building coverage includes permanent fixtures like plumbing, heating, and electrical systems.

Business Personal Property Coverage: This covers the property owned by the business, including furniture, equipment, inventory, and supplies. Business personal property coverage can also include tenant improvements and betterments.

Liability Coverage: This type of coverage protects the property owner from financial losses due to lawsuits resulting from injuries or damages on the property. At Power Risk Management, we encourage property owners to carry both General Liability Insurance that covers the property owner’s legal obligations for bodily injury or damage resulting from accidents on the property and an Umbrella policy that provides additional coverage when the limits of the GL policy have been exhausted. 

Workers’ Compensation Coverage: This type of coverage protects the property owner from financial losses in case of work-related injuries or illnesses suffered by employees. Workers’ compensation coverage is mandatory in Illinois for most businesses that have employees.

Loss of Income Coverage: This type of coverage protects the property owner from financial losses resulting from the property’s inability to generate rental income due to covered perils like fire, vandalism, or water damage.

Flood Insurance: This coverage is essential in Illinois, where floods are common. Commercial property owners must purchase separate flood insurance policies to cover damages caused by floods. 

Knowing your Insurance to Value (ITV) and Co-Insurance penalties.

 In commercial property insurance, the coinsurance penalty is a financial penalty that may be imposed on the policyholder in the event of a partial loss, such as a fire or other covered event.

Coinsurance works by requiring the policyholder to insure the property for a certain percentage of its replacement value, typically 80% or 90%. If the policyholder fails to meet this requirement and insures the property for a lower amount, they may be subject to a coinsurance penalty in the event of a partial loss.

For example, suppose a commercial property has a replacement value of $1,000,000 and the policy requires an 80% coinsurance clause. If the property owner only insures the property for $600,000, which is below the 80% threshold, and then suffers a $300,000 partial loss, the insurance company will only pay a portion of the claim based on the ratio of the insured value to the required amount of coverage.

In this case, the insurance company would only pay $225,000 of the $300,000 claim ($600,000 insured value divided by 80% required coverage multiplied by the $300,000 loss). The property owner would be responsible for the remaining $75,000, which is the coinsurance penalty.

With the increase in replacement costs due to supply and labor costs increases – many Illinois properties are currently underinsured so it’s important to do a review of your property value! 

Cost containment?  Increase your Deductible!

Commercial property owners can opt to increase their deductibles to reduce the cost of insurance premiums. The deductible is the amount that the property owner is responsible for paying before the insurance coverage kicks in.  How high of a deductible you choose depends solely on your cash assets and how open you are to assuming the risk in case of a loss on your property. 

If you have any questions or concerns about your commercial rental property, contact Samuel Quijano, Power Habitational Expert at 773-273-8777 or