Between the pandemic, the popularity of working from home, and the great resignation, more and more buildings are sitting empty. Not only does that mean the buildings are not bringing in income, but they may also pose financial risks because vacant buildings are more likely to incur losses due to vandalism, theft, fire, and wind damage. An undetected water leak can lead to thousands of dollars of damage.
There are also serious insurance implications for vacant buildings, including reduced or excluded coverage. In this article, you will learn what constitutes a vacant building and how to protect yourself against financial risk and loss as the owner of a vacant building.
How do Insurers Define Vacant?
The first thing to understand is your building may be considered vacant by insurance standards even if it has some occupants. Depending on how your policy is written, standard commercial property policies classify a building as vacant if it is less than 31 percent occupied. That means at least 31 percent of the building must be used by the building owner, a lessee, or a sublessee to conduct customary operations to be considered occupied.
For example, say you own a business in Pennsylvania or Maryland with five offices of equal square footage. If three of those offices are empty and two are rented, you have a 40 percent occupancy rate and your office is considered occupied for insurance purposes. If another tenant leaves and only one office space out of the five is being used, your occupancy rate drops to 20 percent. That is well below the 31 percent occupancy rate used by insurance companies, and your building may be considered vacant.
Once an insurance carrier classifies your building as vacant, your coverage for vandalism, sprinkler leakage, water damage, and theft may be removed if your building remains vacant for more than 60 days. If the building does suffer an insured loss within 60 days of being vacant, you will not be penalized. But, if the building has been vacant for more than 60 consecutive days, the insurer has the right to reduce the amount payable to you by up to 15 percent. And depending on how your insurance policy is written, the insurer may not pay you for any damages.
It is important to note that if you have a building undergoing construction or extensive renovation, it is not considered vacant.
Can a Building be Considered Not Vacant at Less than 31 Percent Occupancy?
The answer is yes! You can add an endorsement to your insurance policy that enables you to keep your insurance coverage, even if only 10 percent of your space is occupied. Another option is to request an endorsement called a vacancy permit from your insurance carrier. With a vacancy permit endorsement, you may be able to extend your current coverage to an unoccupied building. Additional premiums and terms will apply.
The good news is if you do have a building that would be classified as vacant by an insurance carrier, you can reduce your risk and increase your insurance protection with a vacant building insurance policy.
What is Vacant Building Insurance?
Vacant property insurance is designed to help protect your unoccupied building from financial risk and loss. Coverage needs can vary based on risk exposures, length of vacancy, the reason for vacancy, and other factors. Policies are available with insurance coverage up to $5 million dollars and general liability coverage up to $1 million. Liability coverage is essential because it protects you from paying out-of-pocket for third-party claims for injuries, such as someone hurting themselves after tripping over a loose tile in your building.
Do You Have A Vacant Building? We are Here to Help!
If you have a building that may be considered vacant, contact an insurance agent at Keller-Brown Insurance Services today. We will work with you to find solutions such as the endorsements discussed above or vacant building insurance to reduce your financial risk and bring you peace of mind. As an independent insurance agency serving Pennsylvania and Maryland, we represent several top-rated insurance companies. We have the flexibility to find you the right coverage at competitive premiums for business, home, auto and more.