How to properly Insure your Industrial or Warehouse property

The world is full of risks, and proper insurance allows you to mitigate these risks. If you ask any industrial property owner, they will rank insurance as their number one source of peace of mind, as it protects them 24/7 from a myriad of potential disasters. So how do you properly insure your warehouse property?

Building costs are up.  They are 50% higher than they were 10 years ago.  Select replacement cost insurance values that reflect reality.  Being underinsured is very painful at claim time

There’s little point in carrying insurance if it will not replace your structure. Many warehouse owners have lost track of what the true replacement cost is today and are effectively under-insured without their knowledge. Don’t let this happen to you.

Have clear rules on the types of businesses you won’t allow and the activities you won’t allow

There can be significant unintended consequences from certain activities in your structure, and these create massive potential liability. Examples are auto body paint shops (fume problems), welding shops (fire concerns) and marijuana growing facilities (too much power and water requirements) – but there are many more. Think through the negative impact of any tenant and, if questionable, contact your insurance agent for their input.

Have clear rules on what equipment may be used on the premises and where it may be used

Once again, some tenants may create huge liability for you as the structure owner. Make sure you have a firm handle on exactly what will be transpiring with your tenant and make sure that all activities are properly covered under your policy.

Include proper ingress and egress instructions for large delivery trucks

There is huge liability in the coming and going of large 18-wheeler trucks. A simple miscalculation by the driver can cause substantial damage to both property and individuals. Make sure that you have clearly posted and instructed all tenants on how these trucks are to come in and out.

Have rules that require tenants to keep any fumes coming from their unit not to enter into other parts of the warehouse (with mult-tenant buildings)

This can be a huge deal in some facilities. One tenant can destroy the free use of the others and create liability from potential toxic fumes. Make sure you have a handle on what the byproducts are of your tenant.

Require that all commercial tenants carry General Liability insurance for their business at your premises and name you as an “additional insured, Landlord”

This step makes complete sense, yet many landlords forget to have the tenant carry their own insurance. Remember that there may be a dispute if there is harm caused by the tenant that should have been covered under their policy. So you have to make sure that they are properly insured.

Periodically inspect the tenant(s) in the warehouse to make sure they are doing no long-term damage to the building.  Tenant caused wear/tear or other intentional acts are usually not losses insured by insurance companies

Although insurance can protect you from many things, it doesn’t protect you from normal wear and tear – and some tenants create far more of this than others. To protect your investment, make sure to do periodic inspections of your building to make sure that nobody is doing more damage than they should.

Conclusion

Insurance is the key to keeping your building safe and secure from a litany of potential hazards. But you have to properly utilize insurance to allow it to do its job. This list will give you some key points to properly insuring your industrial or warehouse building.

Frank Rolfe has been a commercial real estate investor for almost three decades, and currently holds nearly $1 billion of properties in 25 states. His books and courses on commercial property acquisitions and management are among the top-selling in the industry.