How to Insure a Bed & Breakfast or Hotel. Questions to Ask Your Agent Provider Insurance Company

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What would it cost to replace your Bed and Breakfast or Hotel if the building was totally destroyed? Do you have enough insurance coverage to replace it? Do you have enough insurance coverage to repair the damage in the event of a partial loss (claim)? What is Co-Insurance and what does it mean to you?

A beautiful hotel or bed and breakfast building sitting in a prime location, traffic is continuous, occupancy rate is great – profits are marginal, but improving rapidly. Suddenly the central alarm sounds, the sprinkling system goes off and your world is now turned up-side-down. Do you have enough insurance coverage? Can you afford to repair the damage to your hotel or bed and breakfast if the answer is "no"?

In today´s property insurance market – it is easy to confuse "market value" with "replacement cost". Simply put – you can purchase an existing building (Hotel or Bed and Breakfast) for less per square foot than it could take to re-build it.

Most insurance contracts are written on "replacement cost" listing a "co-insurance". The co-insurance can range from 80% to 100%. If your insurance policy for your hotel or bed and breakfast states 100% co-insurance, you are required to purchase 100% of the insurance coverage (building and contents limits) that it will take to replace the Bed and Breakfast or Hotel.

For Example:

The Historic Lodge Inn – is estimated to cost 2.5 Million to rebuild in like kind and quality. The new owners purchased the property for 1.7 Million. Because the bank is only requiring 1.7Million in property coverages, the owner decides to insure the property for 1.7 Million.

The owner of The Historic Lodge Inn purchases insurance on a "Replacement Cost" policy with a 100% coinsurance clause.

When the fire is extinguished and reparation estimates received….the estimated damage to the building is estimated at 1 Million dollars.

1. The Replacement Cost has been established at 2.5 Million

2. The Damage has been assessed at 1 Million Dollars

3. The insurance Policy is written on Replacement cost at 1.7 Million

No problem – right? WRONG!!! Big problem.

Should have: 2,500,000

Does have: 1,700,000

68%

In the above example, the hotel or B&B is insured to 68% of what it should be. This leaves a coinsurance penalty of 32%.

We have been told that the amount of the loss is estimated at 1,000,000.

1,000,000 x 68% = $680,000 (co-insurance penalty of 32%)

1,000 (deductible)

679,000 Claim Payment

Short Fall of $544,000

To avoid the painful consequence of under-insuring your hotel or bed and breakfast property you should consider the following;

• Construction Type

• Know the construction of your property – brick on the outside does not mean you have a Masonry Building. The hotel or B&B building could very well be frame construction with brick veneer.

• Construction Cost

• What is the construction cost in your area? You might consider getting an insurance appraisal done. How much will it cost to build a new franchised hotel property or a bed and breakfast?

• Changes in Ordinance or Law

• Have there been any changes in city or county ordinances that would affect how your repairs will be made? Do you have to install a sprinkling system in your hotel? Do you have an exterior egress to the 3rd story of your Bed and Breakfast? Make sure you consider Law and Ordinance coverage for your building.

• Form of Coverage (ACV/Replacement Cost)

• Replacement Cost Valuation: This loss valuation method pays for the cost to repair or replace damaged items with like kind and quality without deduction for depreciation. This is important since you could face a substantial loss if you must replace property at today's prices but receive only the depreciated value of the property that was destroyed.

• Actual Cash Value: is replacement cost today less depreciation. This valuation basis indemnifies the insured and puts him/her in the same condition after the loss as before.

• What Perils Are Covered – What exclusions are present?

• Fire/Lightning

• Wind/Hail

• Earthquake

• Flood

A loss to an underinsured building, whether hotel or bed and breakfast, could leave you in a situation where you don´t have enough money to repair the damage. What will you do then?

To discuss your insurance needs contact United Insurance Agencies at 1-800-899-0000 or visit our Bed and Breakfast website www.uiabnb.com or our Hotel website at www.hospitalitymax.com You can request further information at;