A business with an exceptional lease into its tenth year of a 20-year term is in a favorable yet vulnerable position. Finding a comparable property at a reasonable rate would be almost impossible. How can a lessee with a valuable lease protect against the building's destruction and the termination of its lease? Tenants caught in such a situation often regret that they didn't know about Leasehold insurance.

This form of insurance protects a tenant's interest in a lease that's canceled when a covered cause of loss, such as fire, damages the described premises. Leases commonly have a cancellation provision that protects the tenant from having to continue lease payments when the leased property is untenantable.

Leasehold insurance can also cover improvements and betterments that the tenant has made to the leased property. Particularly with long-term leases, a tenant is likely to alter the premises to fit the needs of the business. This might include special lighting, cables for computers, counters, refrigeration equipment, or other changes that might belong to the landlord when the lease ends. Leasehold insurance protects the time value of the tenant's use of improvements and betterments.

An insured doesn't receive the same compensation from Leasehold insurance toward the end of a lease as they would at the start of the lease, because the amount of loss declines as the term of the lease progresses. Recovery after a loss comes to the amount it would take per month to rent similar quarters, times the number of months remaining on the lease. Tenants: Get your lease out and contact us.