From accidents and injuries to damage of property, there are many potential issues that need to be covered by insurance. Here are the main considerations.
Protecting your property
What is a lodging or accommodation business without actual lodging facilities? When you're in the lodging business, your physical property is the most fundamental part of your business, and it needs to be protected against damage. Property insurance is a key part of your insurance package, and it should cover you against any deliberate damage, such as vandalism, as well as unavoidable damage caused by weather.
Remember, even a small, home-based lodging operation, such as a bed-and-breakfast or even a vacation rental property, still needs to be covered under commercial property insurance. The limits will vary from one business to the next, but essentially, you want to be covered for the worst-case scenario, so ensure that all property and furniture evaluations are as accurate as possible.
Terms you must know: Replacement Cost or ACV
When insuring your commercial property and the items within it, you need to understand the difference between replacement cost coverage and actual cash value (ACV) coverage. The former covers the current costs of replacing all lost items, whereas the latter covers the actual cash value of all the property or items lost. Property value depreciates, and the cost to purchase replacement property or items inflates; this can create a significant gap between cash value and replacement costs. ACV rarely provides business owners with the coverage they need. Replacement cost coverage might be more beneficial, but you need to understand both coverage types to ensure you get the best coverage for your needs.
Artwork and Collectibles
Standard property insurance might be enough to cover basic losses, but when it comes to expensive, hard-to-replace furniture, artwork, and other interior finishes and furnishings, you will typically need another layer of protection. Standard coverage generally places limits on the replacement costs of such items.
It should be noted that, while replacement cost coverage is typically the more prudent choice, when it comes to antiques and collectibles, consider covering them for the actual cash value. These items are difficult to replace, and the cash value of these items often appreciates over time; as a result, replacement coverage might leave you at a loss, or it may simply leave you stuck with your insurance company while they decide what constitutes a reasonable replacement. In general, insurers will always try to minimize their claims payouts.
Business Interruption
What happens if your lodging business is temporarily unable to provide lodging? This is not an uncommon occurrence; severe weather or building wear could lead to long-term repairs and maintenance that leave no room for guests. This loss of revenue is often not covered by standard property insurance.
By adding business interruption coverage to your insurance package, you will be protected during those periods of time when you are unable to carry on business as usual. Knowing you have this protection will give you the peace of mind you need to maintain your business as needed while re-assuming the operations.
Catastrophic Risks
Get to know the landscape and weather around your business, and talk to your insurance provider about what risks are automatically covered in your property policy; you may be surprised to find that certain catastrophic risks require extra coverage. Occurrences such as floods, earthquakes, volcanic eruptions, and mudflow are typically considered catastrophic risks, and they may require special insurance. It often depends on geography; while some risks are not common in one part of the country, they can be very tangible somewhere else.
Liability Insurance
While planning for some of the more specialized coverages that lodging businesses need, don't forget to protect yourself with a good general liability policy! Any number of things can go wrong with guests staying at your hotel, inn, or other lodging business, including injury, stolen guest property or illness caused by the food you serve. A general liability policy will protect you against claims of property damage, bodily injury, or personal injury to your guests.
Remember that legal and litigation costs can add up to millions of dollars and can seriously impact the ability of your business to succeed.
Commercial Auto Insurance
Do you use vehicles for commercial purposes related to your business? Perhaps to transport or pick up maintenance supplies, or as a shuttle service for guests? Keep in mind that such uses-however limited they may be-are not covered by your personal vehicle insurance, so commercial vehicle insurance is an absolute must.
We hope that you find these insights helpful, and that your lodging business is thriving.
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