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Previous Issues
Issue 30: Loan Sale Premiums Hold Steady in November

Issue 29: Proper Risk Management Protection and Credit Worthiness

Issue 28: BoeFly Helps Veterans With Disabilities Connect With Lenders to Obtain Small Business Loans

Issue 27: Loan Sale Premiums Level off in October

Issue 26: SBA Secondary Market changes - Warranty Period and Premiums on New Larger Loans

Issue 25: BoeFly Surpasses the $1 Billion Transaction Mark

Issue 24: Loan Sale Premiums Continue Climb in September

Issue 23: Robert Tannenhauser, CEO of BoeFly, Interviewed by Michael McKee on Bloomberg Radio

Issue 22: Lender Optimism is up While Anxiously Awaiting the Small Business Jobs Bill

Issue 21: Loan Sale Premiums Blast to Record Highs in August

Issue 20: Title Insurance- the Lender's Perspective

Issue 19: Condemnation and Mortgage Lender's Rights

Issue 18: Long-Term Deals Continue Record Climb; Short-Term Deals Fade

Issue 17: Congressman Walt Minnick (D-Idaho) Gets It

Issue 16: Deeds and Forms of Ownership

Issue 15: SBA Loan Sale Premiums Hit Record High in June

Issue 14: What You Need to Know About Property Insurance

Issue 13: SBA Fixed Interest Rate Loans are an Important Product to have at the Ready

Issue 12: 504 Guaranteed Pool Program Summary and Survey Results

Issue 11: Loan Sale Premiums Surge to Record Highs in May

Issue 10: Environmental Risk for Lending Opportunities

Issue 9: How To Take Advantage of the First Lien Position 504 Loan Pool Guarantee Program

Issue 8: Investors Remain for SBA Loans

Issue 7: Retirement Funds for an Equity Injection - Selecting the Right Plan Provider

Issue 6: Why Outsourcing Environmental Risk Management makes Cents for Lenders

Issue 5: Loan Monitoring: Comfort in a Crisis

Issue 4: BoeFly Case Study: The economics of selling SBA guaranteed loans

Issue 3: BoeFly Lender Survey Results Q1 2010

Issue 2: Loan Sale Premiums Rally in Q1

Issue 1: The Importance of Efficiency in Secondary Markets

What You Need to Know About Property Insurance

Protecting the Business Owner

By BoeFly Member: Robert Leffler, Hagedorn & Company


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The following article deals with some important insurance issues that business owners, borrowers, lenders and commercial property owners should consider in any transaction. We do not address life or disability insurance or directors' and officers' liability insurance. It was written by Robert Leffler. Hagedorn & Company [www.hagedorn.com] a privately held insurance broker in business since 1869 who provides the risk management and placement services needed to assure owners and lenders alike that their business obligations are met.



Although the type and amount of insurance varies depending upon the nature and location of the business and the property owned by the business, certain general coverage should be obtained to protect the business owner:


  1. An All Risk Package Policy covering property and liability exposures - This protects the owner and lender, if any, from casualty losses to both the real estate and business personal property in the event of fire, windstorm, and water damage. The business owner should be aware that certain casualties are generally excluded such as pollution liability, terrorism, earthquakes and flood. These can be covered by separate policies or in some cases, adding them to the package.
  2. Business Interruption Insurance - The package policy may not cover loss of business income which is important to continue the income stream during the rehabilitation of the property, including payments necessary to keep the mortgage current. Business interruption insurance may have to be purchased separately. The business owner should carefully analyze its needs using a business interruption worksheet to determine the amount necessary. A qualified insurance broker can assist in this process.
  3. How much insurance should a business obtain? With respect to the property damage the business owner should make sure that the limit of insurance equals the cost of replacing or rebuilding the property (generally based upon a recent appraisal or local construction costs). You should make sure that the coverage purchased includes building ordinance coverage since ordinary replacement costs do not take into account changes in building codes, such as ADA compliance, that may have been put into effect after the building was constructed. Demolition coverage should also be added since normal policies do not pay for demolition. How much liability coverage should you purchase? Generally the standard policy is $1 million per occurrence and $2 million per annum aggregate. Through an Umbrella policy additional coverage is available and the amount should reflect the location, assets of the owner and potential risks of the business and settlement values in the location.
  4. How does a Lender protect itself against insurance cancellation? The Lender must be listed as a mortgagee and loss payee requiring notice of cancellation from the insurance carrier. The Lender can also carry forced placed coverage, which protects the lender if an error is made and coverage lapsed. It should be noted that the mortgage documents will govern how the insurance proceeds are distributed. The mortgage may permit the lender to repay its loan without funding rehabilitation or it may provide for funding rehabilitation through progress payment disbursements.
  5. How do you choose an insurance carrier? It is essential that the carrier is financially stable and preferably licensed in the State. Financial stability can be checked in the Best's Key Rating Guide. Generally, you would want an A- rating or better. Often an insurance carrier writing umbrella liability coverage will not attach to any policy below a Best's A- rating. It is advisable to use a reputable insurance broker to help you manage risk, cost and navigate the marketplace. The broker's commission is generally paid by the insurance carrier.