Most commercial properties are covered by a form of insurance referred to as “specific coverage.” Having specific coverage means that a particular property is insured and limited to a specific amount of coverage. Consequently, specific coverage can be somewhat restrictive because each building is only insured up to the specific limit listed in the policy. A common scenario that you would see with this type of insurance is one policy covering one designated building at one location. You may also see one policy covering multiple properties and buildings, but each single property has its own specific limit.
Blanket insurance on the other hand can offer one large blanket limit. This limit could provide coverage for multiple locations and buildings.
Blanket Insurance Basics
Because blanket insurance covers multiple locations, it is useful for property coverage for businesses that have multiple buildings. Examples of such businesses include apartment complexes, restaurant chains, and self-storage facilities.
The dollar for dollar rate for blanket coverage is often marginally more than the dollar rate for specific coverage. However, the total cost of risk can be reduced through the use of a blanket coverage policy. Here is an example of how this can work:
Let’s say you own 30 buildings, all of which have an estimated reconstruction cost of $1,000,000. The total cost to rebuild all of the buildings is $30,000,000 ($1mill x 30 buildings). You may decide that because your 30 buildings are spread out across a wide enough geographic territory, you are not concerned with all of the buildings being completely destroyed by one event. In this case, you could leverage blanket coverage and coinsurance to reduce the total insured value. Specifically, your total insured value would be reduced from $30,000,000 to a lower limit that is dictated by the coinsurance clause in your policy.
Coinsurance options are most commonly 80%, 90% or 100%. Let’s look at all 3 examples:
- If you elect 100% coinsurance, your blanket coverage would cover 100% of the cost to rebuild – $30,000,000.
- If you elect 90% coinsurance, your blanket coverage limit would be $27,000,000 (90% x $30,000,000.)
- If you elect 80% coinsurance, your blanket coverage limit would be $24,000,000 (80% x $30,000,000.)
If you are confident that one event is not going to create a total loss to all buildings, you can reduce your total cost of risk. How? By taking a wholistic approach to your portfolio of properties. Putting them on one blanket policy and using coinsurance to reduce the total insured value will, in turn, reduce your total cost of risk. Then, for any single claim, you will have the total blanket coverage limit available. You can fall back on this coverage amount even if the claim is only for damage to one building.
It’s important that your insurance agent has a solid understanding of blanket insurance. That way, you will have no doubts that your policy is set up properly. When done right, you will be able to improve your insurance coverage while also reducing your costs.
Real estate portfolios are not the only type of property where blanket coverage should be deemed an appropriate coverage option.
Another common use case is a manufacturing company or distributor with stock that is spread out across multiple locations. Especially when the stock values fluctuate throughout the year. Instead of including insurance for stock at a limit equal to the maximum potential value at each single location, blanket coverage with a “reporting form” could be used to provide a large blanket limit. This limit would apply to every location, and is based on the average stock values at each location.
The owner of a restaurant chain may choose to leverage blanket coverage to address both of these issues. They could use their policy to cover all buildings, equipment, and stock.
Finding the Right Policy for You
Blanket coverage often provides more comprehensive protection than specific coverage does, and in many cases can help reduce costs. A thorough understanding of blanket coverage is required to properly set up an insurance plan that includes a blanket. Contact Camargo today. We will work with you to understand your business and create an insurance plan that meets your goals.