What is Commercial Property Insurance?
Commercial property insurance is also sometimes referred to as business property insurance or Commercial Buildings Insurance. So what does it cover? Commercial property insurance covers damages that result from some natural disasters, theft, fires, and other hazards. It protects commercial property in much the same way that personal property insurance protects homeowners.
It can cover damage incurred to your small business—whether you own, rent, or lease your building, or if you work out of your home. One caveat to note: If you work out of your home, your homeowner's insurance policy might not cover your business-related equipment or equipment you store there. Thus why it's important to consider a commercial property insurance coverage.
What Does Commercial Property Insurance Cover?
Property insurance covers a lot of the same physical assets as personal property insurance, including damages caused by fires, storms, and theft. You may need to add on additional coverage for commercial property that isn't attached to your building, like commercial vehicles, signs, or outdoor fences. Your insurance agent can help you create an insurance policy that will cover everything you need.
Physical assets that are typically covered under business property insurance—other than the building itself— include:
- Satellite dishes
- Important documents
Loss of income and cost of construction to rebuild destroyed property is included in most property insurance.
Commercial Property Insurance Exclusions
Many small business owners believe their property insurance will cover damage to their building from a disaster—but that is not always the case. In general, your property insurance will cover you from a loss of a common risk like an accident, theft, or vandalism. Fire is normally covered under your property insurance. However, damage to your building caused by natural disasters such as flooding may not be. If you live and work in an area that is prone to flooding, you should consider purchasing flood insurance.
Earthquakes are another disaster that is often excluded. If your business is located in an earthquake-prone area such as California, you will need a separate insurance policy or earthquake endorsement to adequately protect your building.
If your business were to be damaged in a terrorist attack, your business property insurance would not cover the damage. Under the Terrorism Risk Insurance Act of 2002, businesses must purchase additional terrorism coverage to protect against losses due to terrorist attacks. Another exclusion from commercial property insurance is nuclear attack and damage from war.
Willful negligence or damage to your building caused by you or an employee would also be excluded. Last but not least, normal wear and tear to your commercial properties is not covered by business insurance.
Types of Commercial Property Insurance
Here's a rundown of the different types of property insurance:
Direct Damage Property Insurance
This is what most people think of when they see the phrase "property insurance." Direct damage property insurance covers the physical loss of property or physical damage to property. Commercial property insurance policies usually cover the replacement or rebuilding of property. You can also include coverage for cleanup and debris removal after a covered natural disaster. Direct damage coverage is flexible, and you can add on, remove, or adjust coverages as you need through endorsements.
Time Element Coverages
With time element coverages, the losses your business incurs due to an incident are directly tied to how long it takes to repair the damages. The longer the repairs to your business take, the more your losses grow. Time element coverage is generally tied in with direct damage coverage.
Replacement Cost Vs Actual Cash Value
What is the difference between replacement cost and actual cash value? Which should you choose for your business?
- Actual Cash Value (ACV): This is the cost of the item(s) minus depreciation. The value paid to you is almost always lower than what it was purchased at. Of the two options available, this is the more affordable choice and you'll likely have a lower monthly premium.
- Replacement Cost Value: This is where you're paid the amount necessary to completely replace damaged or destroyed property. Because the monetary amount you're paid is typically higher than ACV, it is also more expensive for this type of policy. If your business assets are costly to replace, this may be the better coverage option.
Guaranteed replacement isn’t normally found in commercial insurance like it is in homeowners insurance, but if you are fortunate enough to have that coverage, the loss will be covered to replace the property to its original state, even if it means exceeding the policy limit.
It’s always a good idea to photograph or digitally record your space and hold those off site. Include photos of your business assets (machinery, equipment, computers, etc.). When filing a claim, it is much easier to determine “Like kind or quality” from visual records.
Choosing which type of coverage that is right for your business is difficult. Normally, Actual Cash Value is less expensive than Replacement Cost. The difference in premium can be substantial. Sit down with your licensed insurance professional and determine scenarios and risk.
Examples of Covered Claims
So what does commercial property insurance cover? Here are a few examples to help demonstrate what your business insurance can do for you:
- Your small business is located in California and it's been an especially dry season. Unfortunately, California is prone to wildfires. Your business property is destroyed in the fire. Your insurance company will cover the cost of rebuilding the property, income lost during the time period of rebuilding, and any equipment that was destroyed in the fire.
- You show up at your business to find the door ajar and broken glass everywhere. As you're dialing 9-1-1 you walk in and survey the damage. All of your computers have been stolen. If you chose replacement cost value under your property insurance policy, your insurance company will replace the broken window and computers.
- Storms sweep through your area and a tornado touches down close to your small business. A tree has fallen through the side wall and part of your roof was torn off. Your insurance company will process your claim and cover the cost of repair to your commercial property.
Consider a Business Owner's Policy
A business owners policy (often shortened to BOP) covers property that's on-site. A BOP combines general liability insurance with property insurance, so your business will be covered from any claims related to property damage, bodily injury, and personal injury. This business insurance is a good starting place for small business owners since it's more comprehensive than commercial property insurance while still being affordable.
Other Insurance Policies to Consider to Protect Your Business
Here are some other insurance policies business owners should consider as a complement to commercial property insurance:
Extra Expense Coverage: This covers additional expenses that your business incurs to stay open, or at least to minimize the amount of downtime you need to before you can reopen.
Business Interruption Insurance: This covers any income that your business loses that's directly tied to your company being forced to close for the time being because of physical property damage for a covered incident.
Leasehold Interest Coverage: This protects you by covering any financial loss you incur due to your lease being canceled as a result of physical damage or loss of commercial property.
Commercial Vehicle Insurance: This policy is also sometimes referred to as 'Commercial Auto Insurance'. If your business owns vehicles, they probably aren't covered under your personal auto insurance. Commercial vehicle insurance will insure company vehicles and cover damages in the event of an accident or break-in.
Equipment Breakdown Coverage: This type of policy covers your business if your furnace or boilers breakdown, the A/C in the building stops working, or an electrical surge causes damage to computers. It's often smart to include this as part of your business insurance package if you own expensive equipment.
What To Look For in Property Insurance
In the world of insurance today, there are various packages available to cover a multitude of risks. The key is to maximize coverage without duplication. Your agent or broker can determine what coverage and risk your particular business could face. You’ll need to compare policy coverage, premiums, risks, deductibles, and many factors in selecting your final property insurance coverage. Like many business people, after weighing the options, you’ll want to choose the most coverage you can afford. Commercial property insurance offers different options for coverage with a number of variables. It doesn’t matter whether you are insuring the building, the business property or any combinations, a variety of options are available to pick from.
Commercial Property Insurance Cost
Insurance cost varies from insurance company to insurance company. Some businesses pay around $500 a year and others up to $5,000.
What Impacts the Cost of Your Commercial Property Insurance?
Calculating your commercial property insurance cost will depend on several factors, including the type of business you own, where it's located, how much coverage you want, and the insurance company you choose.
- Location: Your business will have different environmental risks depending on where it's located. Your land value will also impact how much your premiums cost, as will the area's crime rate.
- How large your business property is: Because a small one-room rented office is lower square footage, you will be able to get insurance for less than a manufacturing facility.
- How old your building is: An older building tends to cost more to insure than a newer building since they are more susceptible to damage (sometimes due to older electrical and heightened fire risk).
- What physical assets need to be insured: The type and age of any equipment you need to insure will play a large role in how much your insurance policy costs. Heavy machinery will cost more to insure than a couple of laptops, and older machines with rare parts might cost more to insure because they are more difficult to repair.
Commercial Property Insurance Forms
When choosing business property insurance, there are three forms to choose from. This has to do with cause of loss:
- Special Form: The broadest option possible—the reason is that everything is a covered loss unless excluded within the policy. It occasionally may be called an “open peril” policy.
- Broad Form: This pertains to named perils. In other words, for a loss to be covered it must result from one of the specific perils named within the policy.
- Basic Form: This policy is very basic regarding named perils. It is limited to 12 perils. Insurance companies refer to it as 'fire, wind and extended' coverage. You must understand that it has limitations.
Get a Commercial Property Insurance Quote
If you're a business owner, you should invest in commercial property insurance to stay protected in case of a disaster. Our trained agents can help get you quotes for building insurance, and connect you with the right coverage for your small business—with the insurance company that is the best fit. Enter your zip code into the form above and click “Get Quote” to get a quote.