10 Insurance Mistakes Texas Commercial Property Owners Make

Which Insurance Mistakes Cost Texas Property Owners the Most?

The most expensive mistakes rarely show up until a claim. Most come from a number nobody checked, an assumption nobody questioned, or a document nobody collected. The table sums up ten common ones, and the sections below explain each.

Why Is Insuring the Purchase Price a Mistake?

Because the purchase price is not what it costs to rebuild. The price includes land, location and rental income. The insurance value should be the cost to rebuild the same building today, called replacement cost.

Rebuilding cost can be higher or lower than the price. A building bought at a discount, or one built when labor and materials were cheaper, is often worth far more to rebuild than it cost. When the limit is too low, the coinsurance clause can shrink every payment, not just total losses.

The fix: get a replacement cost estimate for each building, review it at every renewal, and keep a current statement of values. Ask your agent whether an agreed value option is available. It suspends the coinsurance clause for the policy term. Our coinsurance guide walks through the math.

How Can a Percentage Deductible Surprise You?

A percentage deductible is a percentage of the insured value, not of the claim. In Texas it is common for wind and hail, and on the coast for named storms. A small-looking percentage can be a large number.

Policies differ on what the percentage applies to. It may be the value of the damaged building, of everything at the location, or of the whole schedule. Read the wind and hail deductible and any named storm deductible wording, and ask your agent to work it out in dollars.

The fix: list every deductible in dollars for each building. Make sure you can fund the largest one from cash or reserves. Ask for quotes at more than one deductible level, and check whether your lender caps deductibles. Texas had more major hail events than any other state in 2025 (III), so this is not a rare scenario. Our Texas deductibles guide goes deeper.

What Happens If You Skip Ordinance or Law Coverage?

Standard property policies usually pay to repair what was damaged, built back the way it was. They generally do not pay much for the extra cost of meeting today's building codes, or for tearing down undamaged parts that the city says must come down.

Ordinance or law coverage (for example, ISO form CP 04 05) fills that gap in three parts. Coverage A pays for the value of the undamaged portion you are required to tear down. Coverage B pays demolition costs. Coverage C pays the increased cost of construction to meet current codes.

The fix: add ordinance or law coverage with limits sized for each part, especially for buildings that predate current codes. Ask your local building department how its rules treat heavily damaged buildings, and share the answer with your agent.

How Long Should Your Loss-of-Rents Coverage Last?

Long enough to rebuild and get tenants back, not just to finish construction. Loss of rents (a form of business income coverage) usually pays only during the period of restoration and up to the limit or time period you choose.

After a major Texas storm, everything takes longer: adjusters, permits, contractors and materials. A large loss can also mean lost tenants who must be replaced. Twelve months is a common choice, but it is not always enough. An extended period of indemnity can add time after repairs end.

The fix: have your agent help you complete a business income worksheet and estimate a realistic rebuild time. Check whether the coverage is a dollar limit or a number of months, and whether your lender requires a minimum. Our loss of rents guide explains the details.

Why Do You Need a Flood Decision, Even Outside a Flood Zone?

Because standard commercial property policies exclude flood, wherever the building sits. Flood insurance is a separate policy, from the National Flood Insurance Program (NFIP) or a private insurer.

• NFIP limits are capped. For non-residential buildings, the maximum is $500,000 for the building and $500,000 for contents (FEMA). For apartment buildings with five or more units, it is $500,000 for the building and $100,000 for contents (FEMA).
• There is usually a 30-day waiting period. Exceptions apply when coverage is bought in connection with a loan, and for some newly mapped high-risk areas (FloodSmart).
• NFIP commercial policies pay actual cash value for the building and contents, meaning depreciation is subtracted.
• Larger values need more. Excess flood insurance or private flood insurance can add limits above the NFIP caps.

The mistake is not declining flood insurance. It is never deciding at all. Owners outside a mapped high-risk flood zone often assume they are safe, but heavy rain can flood low spots anywhere.

The fix: look up each property's flood zone and ask for flood quotes before storm season. Decide building by building and write down the decision. If you buy, check that the limits match your values. Our commercial flood guide covers the options, and our Texas property risk page shows the bigger picture.

What Does Vacancy Do to Your Coverage?

It shrinks it. Under common policy wording (the vacancy clause), the change starts once a building has been vacant for more than 60 days in a row. Some losses are no longer covered, and payment for other covered losses is cut by 15%.

According to IRMI's summary of the standard wording, several losses are no longer covered. They include vandalism, sprinkler leakage (unless the system is protected against freezing), building glass breakage, water damage, and theft or attempted theft. For an owner, a building counts as vacant unless at least 31% of its square footage is rented and used for normal operations, or used by the owner. Buildings under construction or renovation are not considered vacant.

Freeze is the other risk in an empty building. In TDI's data on the February 2021 winter storm, commercial property was about 10% of claims but about 53% of incurred losses (TDI).

The fix: tell your agent as soon as you expect a vacancy. Ask about a vacancy permit endorsement, and keep heat on, water shut off where possible, regular inspections and good lighting.

Why Should You Collect Tenant and Contractor Certificates?

Because when a tenant or contractor causes an injury or damage, the lawsuit often names the property owner too. A tenant's own policy protects the tenant. It protects you only as far as you are named as an additional insured and the policy terms allow.

A certificate of insurance is proof that coverage existed when it was issued. Policies expire, get cancelled or change, so one certificate at lease signing is not enough.

The fix: require insurance in every lease and service contract, collect certificates and endorsements before work or move-in, and track expiration dates. Our guide to additional insured status and certificates walks through it.

What Other Mistakes Are Common?

Mistake 8: Leaving the Renewal to the Last Minute

Underwriters need time to review updates, order inspections and quote. When work starts two weeks before expiration, there is little room to shop, fix problems or read new terms. The market has eased in 2026: CIAB reported commercial property premiums fell 6.3% in the second quarter (Insurance Journal). An early start gives you time to compare. Begin 90 to 120 days ahead.

Mistake 9: Assuming You Have “Full Coverage”

No policy covers everything. Common commercial property policies exclude flood, earth movement, and wear and tear, and they limit mold. Sewer backup often needs its own endorsement. In the area served by the Texas Windstorm Insurance Association (TWIA), the 14 first-tier coastal counties and part of Harris County, private policies often exclude wind and hail (TWIA). Ask your agent for the main exclusions, limits and deductibles on one page.

Mistake 10: Going Without Workers' Comp Without a Plan

In Texas, workers' compensation is optional for most private employers. An employer without it is a Texas Non-Subscriber. In an injury lawsuit, a non-subscriber cannot argue that the employee was partly at fault, assumed the risk, or was hurt by a co-worker's negligence (Labor Code §406.033). Non-subscribers must also post and give notices and file a notice of no coverage (DWC Form-005) (TDI). Make this choice deliberately, with your agent and an attorney.

What Should You Do Next?

1. Pull your current policies and write down each building's insured value, deductibles in dollars and policy dates.
2. Get a replacement cost estimate for any building you have not valued in the past year.
3. Check that ordinance or law and loss-of-rents coverage fit each building's age and rebuild time.
4. Look up each property's flood zone and write down your flood decision.
5. List any building that is vacant or may become vacant, and tell your agent.
6. Collect current certificates and additional insured endorsements from tenants and contractors.
7. Put your renewal start date (90 to 120 days ahead) on the calendar.
8. If you would like a second look, request a quote or contact us.

Questions Owners Ask

Sources

1. IRMI — Vacancy: What does it mean for commercial property coverage?
2. FEMA — NFIP summary of coverage for commercial property
3. FloodSmart — Buy a flood policy (waiting periods)
4. Texas Department of Insurance — February 2021 winter weather event data call summary
5. Texas Department of Insurance — Workers' compensation non-subscribers
6. Texas Windstorm Insurance Association — Eligibility and designated catastrophe area
7. Insurance Journal — CIAB Q2 2026 commercial market survey
8. FEMA NFIP bulletin W-13070: June 1, 2014 program changes — Other Residential (5+ unit) limits: $500,000 building, $100,000 contents
9. Texas Labor Code §406.033 — Defenses a non-subscribing employer loses