Commercial Property Insurance:
What is commercial property insurance?
Commercial property insurance protects the business’s tangible assets from perils such as fire, theft, and natural disaster. However, earthquakes, floods, or hurricanes typically aren’t covered by commercial building insurance, unless added to the policy. Property insurance helps companies protect all the properties vital for daily operations, extending not only to buildings and offices but also inventory, furniture, or any physical asset. Therefore, commercial property insurance coverages offer tailored policies that meet the unique risks of the business owner. This coverage can help your business if there is any loss to the property:
- Your computer is damaged due to fire.
- Your office building is non-operation due to a lightning strike.
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According to a report by Entrepreneur, a fire destroyed nearly 50 boardwalk businesses in the adjoining neighborhood of seaside park, due to which five-block area went up in flames.
With regard to business property insurance coverage, the policy terms and limits reflect the assets and acceptable loss thresholds. While the coverages vary from policy to policy, there are virtually no industry-specific differences.
There are three levels of coverages that commercial property insurance offers. Therefore, you can choose the level of coverages depending upon your business.
- Basic form policy: It covers standard natural disasters, fire, and theft. For most businesses, this policy should suffice.
- Broad form policy: It covers everything that a basic form of policy covers. In addition to that, it protects from falling objects, water damage, and collapsing structures.
- Special form policy: It covers everything until there are any exclusions in the policy form.
Imagine that you started a second-hand clothing store. A week later, you come to the store, notice the smashed windows, and all the inventory missing. The stolen inventory consisted more than $100,000 worth of merchandise. For any business owner that’s a lot of money. In this case, without commercial property insurance, it is nearly impossible to reopen the business due to lost capital. Therefore, any property that has an equity line of business needs commercial real estate insurance.
What does commercial property insurance cover?
Commercial property insurance is part of a lumped policy called commercial property and casualty insurance. This policy is usually combined with other forms of insurance, such as general liability insurance and packaged with the business owners policy. Furthermore, business property insurance can be taken as a standalone policy as well.
According to a report in Insurance Business Magazine, commercial property and casualty insurance rates have flattened, and the soft market conditions are continuing to rise.
Even though having commercial property insurance is not mandatory by law , most lenders will want you to have it. There are multiple risks that your company might have to face in case of a catastrophic event. Therefore, property insurance acts as an assurance against some of the risks, which are:
Rebuilding your business from scratch can be expensive. Sometimes it’s so costly that it is not possible without insurance.
For any business, it takes years to create a reputation, but only a matter of seconds to ruin the hard-earned reputation. If your customer faces any difficulties because of your business and you cannot afford to solve the problem, your business can face severe reputational harm. According to the Insurance Journal, the costliest claim for a small business is reputational harm.
- Legal trouble:
Being unable to pay vendors and employees, defaulting on loans, or failing to reimburse your customers can land you in legal trouble.
- Spoiled inventory:
If your stock gets stolen or damaged, it is not possible to replace everything as inventories are expensive.
Commercial property insurance companies provide coverage for these primary areas of loss:
- The building or office space:
If there is damage to your building and components permanently affixed to the building, insurance pays for the repairs and replacements.
- Contents within the building:
Any damage done to the properties within the building due to covered losses, insurance covers the damage.
- Other people’s property:
Your vendors or customers have left the property in your business custody, and you accidentally misplaced or damaged the property. In such cases, the insurance helps to replace or pay for the damages.
- Signs and marquees:
Insurance covers any harm done due to any covered peril to the building, fixtures, and free-standing marquees.
- Loss of business income:
If your company has to close for repairs temporarily, business interruption insurance replaces lost profit up to the policy limit.
Some standard endorsement and exclusions you must consider:
Depending on the company, an owner may need to add additional coverages to their existing commercial property insurance coverage. Some of the common endorsements that any business owner can add to their policy are:
- Business ordinance coverage: When you rebuild or restructure your business after a covered loss, building ordinance coverage can help with the additional cost.
- Commercial umbrella insurance: It begins when the underlying policy reaches its limit. Commercial umbrella insurance helps you add an extra layer of liability coverage.
- Business crime insurance: It helps you replace the property that’s stolen by your employee or outsider.
- Inland marine insurance: If your supplies or property gets stolen during transit from one location to another, inland marine insurance helps to cover the losses.
- Valuable paper coverage: Helps you protect your valuable papers on an all-risk rather than a named peril basis.
- Spoilage coverage: Helps you reimburse the cost for inventory ruined in power outages.
Business building insurance excludes few coverages. The exclusions are:
- War: The policy will not cover any damage done to the building because of terror attack, damage from missiles, or another machine of wars.
- Earthquake: All commercial property policies exclude damages from earthquakes. To protect your building from earthquakes, you need to call an earthquake authority insurer.
- Certain smoke: Commercial property insurance does not cover smoke damages. If the smoke was from accidental occurrence like from a factory or agricultural exposures, the policy will not cover from the damage.
- Certain fire: Fire insurance coverage include damage caused by a fire that does not normally occur inside a building. Fire that started from a place where a fire is natural, such as stove, commercial property coverage will not cover for the damage.
Types of insurance that includes commercial property policy:
- Contractors insurance
- Landscaping insurance
- Handyman insurance
- General contractor insurance
- Farm insurance
- Church insurance
- Entertainment insurance
- Beauty insurance
- Construction insurance
- Engineer insurance
- Art insurance
- Food business insurance
- Restaurant insurance
- Food truck insurance
- Hotel insurance
- Consultant insurance
- Photography insurance
- Pet business insurance
- Nonprofit insurance
- Real estate agent insurance
- Gas station insurance
Multiple factors that determine commercial property insurance rates:
Commercial property owner insurance plans determine the cost value based on the replacement cost of the item or its actual cash value. According to Willis Towers Watson, in 2020 there will be a hike in the commercial insurance prices.
The factors that impact property insurance costs are:
- Size of business premises: The size of your business premises, determines the cost. A smaller working space will cost less to insure than a factory or a large office.
- Geography: The land value, crime rate, and how prone the location is to natural disaster, determines the cost. According to a report by National Real Estate Investor, natural disasters will significantly affect commercial property rates soon. Thus, businesses located in areas at the risk of floods, wildfire, or hurricanes should ensure they get coverage and minimize premiums.
- Age of building: Old buildings can be more susceptible to damage compared to new premises.
- Type of equipment: Heavy industrial equipment will cost more to insure than light equipment.
- Age of equipment: If you use equipment whose spare parts are old and scarce, you may pay higher premiums.
- Types of hazards covered: Open perils cost more than a policy that covers named peril.
- Property valuation method: Replacement value coverages cost more than actual cash value.
- Safety and security: If your company is close to hazardous or flammable materials, your insurance policy may differ from the rest.
- Construction: New and upgraded HVAC systems and electrical wiring can lower insurance premiums.
- Protection: Alarms and sprinkler system can reduce the insurance rates.
There is no pre-determined rate that can apply for all the insurance premiums. According to International Risk Management Institute the commercial property insurance rate varies depending on the characteristics of the property to be insured (COPE) and the level of coverage you want.
Frequently asked questions about commercial property insurance:
Some of the commonly asked questions about commercial property insurance are:
Do I need business property insurance?
You may need property insurance if you,
- Own or operate a business.
- Have physical assets in your business.
- Refer to the above list of professions who should have property insurance.
Having a commercial property insurance for your business will act as an added bonus for your company’s reputation. Moreover, business contents insurance gives you a sense of security.
Does property insurance cover all legal risks?
What if I don't own the building in which I conduct my business?
Do my vehicles also get insured with commercial property insurance?
Business owners consider vehicles used for business as commercial property. But vehicles are not covered under commercial property insurance, but commercial auto insurance can get your vehicle insured.
How do I figure out if commercial property is the right policy?
- Revenue loss
- Property loss as a result of a natural disaster
- All forms of physical assets
Does commercial property insurance protect the property from loss due to a virus?
According to Business Insurance, viruses, and infectious diseases such as COVID-19 are excluded from commercial property insurance. If there is any direct physical loss to the property, then property insurance will cover the damages.