Recommendations When Purchasing Business Insurance for Rental Companies

Recommendations When Purchasing Business Insurance for Rental Companies

General Liability
This is protection for your business in the event your business operations cause injuries and/or damage to other people and their property. It is vitally important in this day and age that a rental operation have at least a 1 Million per Occurrence and a 2 Million Aggregate General Liability Policy. Most insurance companies will not issue a general liability policy with a lesser limit of coverage.

Building Coverage
We highly recommend that one insure their building to its Full Value using 100% Replacement Cost as its valuation. Some policies use an 80% co-insurance clause with their building valuation. This could cause some problems if a major claim arises. When one insures their building at 100% Replacement Cost, the claims process functions better in the event of a loss.

Business Personal Property (Contents)
BPP should include the following and also be insured at a 100% Replacement Cost evaluation: furniture and fixtures, computer hardware and software, sales inventory, tools (not rental inventory), machinery not held for rental and improvements & betterments.

Business Income Coverage
Business Income coverage will protect the rental operation for the actual loss of one’s net profits plus continuing expenses, including loss of rents that results from the necessary suspension of one’s operations during the period of restoration caused by direct physical damage to property at one’s location. The basic rule of thumb is whatever one’s total gross annual income is, take 30% to 40% of that gross annual income, and that can be used for a basis on Business Income Coverage. Be sure the policy has no coinsurance or monthly limitations.

Business Auto Coverage
This coverage provides protection against claims arising out of the operation, maintenance or use of owned, non-owned or hired autos including trailers (above 10,000 gross vehicle weight). One should have their automobile liability limit set a 1 Million along with the Uninsured and Underinsured Motorist coverage. Depending on the state where the business is located, one should have at least $5,000 in Medical Payments Coverage or Personal Injury Protection. Some rental operators have their personal vehicles insured under their business policy. If this is the case, one must have Driver of Other Car Coverage in place on their business auto policy.

Inland Marine
This policy covers the rental inventory and should be listed on a Replacement Cost basis. We strongly encourage our clients to utilize the following formula to come up with a good solid value for their rental equipment on a Replacement Cost basis to be properly insured. One should take the cost of their rental inventory listed on their balance sheet, find out what the average age of their equipment is, and multiply 3% per year on the average age of their equipment. For example, if one’s cost of rental equipment is $250,000 and the average age of their inventory is 4 years, one would then do the following:
$250,000 x 3% = $257,500
$257,500 x 3% = $265,225
$265,225 x 3% = $273,182
$273,182 x 3% = $281,377
This formula is a good standard for figuring out the Replacement Cost of one’s rental inventory.

Workers’ Compensation
Many policies in the insurance market place today write the standard Employer’s Liability limit at a minimum. The minimum limit is $100,000 Each Accident / $500,000 Disease -Policy Limit / $100,000 Disease-Each Employee. To better protect the insured, we strongly recommend that the Employer’s Liability Limit be raised to $500,000 Each Accident / $500,000 Disease-Policy Limit / $50,000 Disease-Each Employee. The cost for this higher limit of coverage is only about 1.5% higher than the lesser limit of coverage.

Umbrella Policies
Depending on the size of one’s rental operation or assets of the rental operation, one may want to consider an umbrella policy. An umbrella policy is additional protection that basically can be placed over the general liability policy, automobile liability policy and in some cases the Workers’ Compensation Policy. The basic umbrella policy affords an additional 1 Million Dollars in coverage. Larger rental operations may want to have a higher limit of protection.

Certificates of Insurance
Most rental operations are beginning to request certificates of insurance from their contractors and business accounts. We highly recommend our clients request certificates of insurance with the Additional Insured endorsement on their customer’s general liability policy. Secondly, we suggest our clients request certificates of insurance with the Loss Payee clause for “equipment rented” on their customer’s policy. Both of these certificates of insurance help protect our clients, their insurance company, and assists in lower premiums.

Insurance Company – A Final Note
We all remember when we were in school and at the end of a grading period; the teacher would assign grades for one’s work. (A, B, C, etc.) If you were like me, you didn’t see too many of those “A” grades. All insurance companies receive a rating from either AM Best or Standard & Poor. In our ever changing world, the final strength of an insurance company is paramount. The “rating” given to an insurance company depicts the financial strength and claims paying ability of that insurance company. We strongly recommend utilizing an insurance company that not only specializes in insuring the rental industry, but also has at least an “A” rating within the insurance industry. We at National Insurance Specialists only utilize insurance companies whose ratings are at least an “A” with a financial strength of “VII” or better.


The information contained here is to be used as a “guide”. Each rental operation, though similar, is unique and many coverages will need to be “tailored” to meet their needs. This is why it is important to be insured with an insurance agency that knows and understands the needs of the rental industry. The insurance agents of National Insurance Specialists, average 15 years of experience assisting rental dealers with their business insurance needs.