Commercial Property Insurance
Everything You Need To Know
Commercial property insurance provides coverage to business owners to protect their property and its contents such as infrastructure, equipment, furniture, and any other existing physical assets.
Therefore, the policy offers to repair or replace a variety of assets including business personal property, business income, marine equipment, cargo, and third-party property that is in your custody.
According to the National Real Estate Investor study, Hurricane Irma is ranked as the fifth costliest storm in U.S. history, which incurred $50 billion in property damage.
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What Is Commercial Property Insurance?
Commercial property insurance helps to protect the business’s physical assets from perils such as fire, theft, and natural disasters. On the other hand, catastrophes such as earthquakes, floods, or hurricanes aren’t covered unless added to the policy.
It is also a key coverage in business owners policy insurance. Hence, tailored policies that help you meet the unique risks of being a business owner are offered by commercial property insurance.
While specific coverage varies from policy to policy, there are no industry-specific differences. However, commercial property insurance covers three types of coverages which give you the opportunity to select the level depending on the needs of your business.
Basic form policy
The policy offers standard coverage for natural disasters, fire, and theft.
Broad form policy
This policy covers everything that comes under basic form policy. Additionally, the policy also provides protection from falling objects, water damage, and collapsing structures.
Special form policy
The policy provides coverage from everything except for the exclusions listed in the policy.
Virtually all kinds of commercial property can be covered under this insurance policy, although it’s most often purchased to cover physical infrastructure. However, with that being said, the intent of commercial property insurance is to pay for the restoration or maintenance of damaged, lost, or stolen property and help businesses resume operations quickly.
What Does Commercial Property Insurance Cover?
Commercial property insurance is also a part of a combined policy called commercial property and casualty insurance. Generally, they are merged with other forms of insurance, such as general liability insurance and it’s often available as a part of a business owners insurance policy. Furthermore, business owner’s insurance can also be considered a standalone policy.
Most lenders prefer business owners to have commercial property insurance even though they are not required to have it. Because there is a multitude of risks that your business might have to face in times of a catastrophic event.
Therefore, commercial property insurance will act as a protection against a few of the risks, which are:
There’s always a possibility to go bankrupt when operating businesses and can be an expensive loss for the company. Because of this, sometimes restarting your business from scratch is impossible without insurance.
They say it takes many good deeds to build a good reputation, and only a single bad one to lose it. Furthermore, not being able to help your clients in crucial times and creating more issues can bring reputational harm to your company. Furthermore, according to the Insurance Journal, reputational harm is the most expensive claim for a small business.
Not being able to pay employees and vendors, defaulting on loans, or unable to reimburse customers will land you in legal trouble. so, having commercial property insurance covers businesses from related issues.
If your goods get stolen or damaged, then replacing inventories can be costly. Therefore, commercial property insurance provides companies coverage for these primary areas of loss:
The building or office space
Commercial property insurance will pay for the repairs and replacements if there is damage to buildings and components permanently affixed to the infrastructure.
Contents within the building
If there is any property damage within the building due to covered losses, the insurance policy will cover the damage.
Other people’s property
Your vendor’s or customer’s property was accidentally misplaced or damaged while it was left in your custody. Nevertheless, in such situations, commercial property insurance will help you pay for replacement or damages incurred.
Signs and marquees
It covers any harm done due to any covered peril to the building, fixtures, and free-standing marquees
Loss of business incomes
Business interruption insurance will help replace lost profit up to the policy limit, if the company has to close for temporary restoration.
Some Standard Endorsements and Exclusions to Consider:
Depending on the company, the business owners will need additional coverage to secure their commercial property. Additionally, some of the common endorsements are:
Business ordinance coverage
Building ordinance coverage will cover the additional cost incurred when rebuilding or restructuring the company after a covered loss.
Commercial umbrella insurance
Commercial umbrella insurance will help to add an extra layer of liability coverage.
Business crime insurance
It helps you replace the property that was stolen by your employee or an outsider.
Inland marine insurance
It will cover the losses incurred of your supplies or property stolen while transporting from one location to the other.
Valuable paper coverage
It will protect valuable documents on an all-risk rather than a named peril basis.
It will reimburse cost for the inventory ruined in power outages.
Business building insurance exclusions are:
Damage incurred due to terror attacks, missiles, or other machines of wars, will not be covered by the insurance policy.
All commercial property policies exclude earthquake damages. So you will need to contact an earthquake authority insurer to secure your building from earthquakes.
The insurance policy does not cover smoke damages. For instance, if the smoke was due to accidental occurrence from a factory or agricultural exposures, the policy does not cover the damage.
Fire that is started from a place where fire is natural, such as the stove, commercial property insurance will not cover the damage. Also, fire insurance coverage includes damage caused by a fire that usually does not occur inside a building.
Types of Insurance That Include It
Commercial Property Insurance Rates
Willis Towers Watson reports a hike in commercial insurance prices in 2020. Furthermore, there are multiple factors that determine the rate of commercial property insurance:
- Size of business premises: The cost is determined by the size of your business premises. So a smaller working space means lower insurance costs compared to a factory or a big office space.
- Geography: Crime rates, land value, and how prone a location is to natural disasters, determine the cost of the policy. Furthermore, a report by the National Real Estate Investor shares, that natural calamities will significantly affect the rates of commercial property rates.
- Therefore, businesses located in areas futile to floods, wildfire, or hurricanes, should get coverage and minimize premiums.
- Age of building: Old buildings are susceptible to more damage compared to new buildings.
- Type of equipment: The cost to insure heavy industrial equipment will be expensive than lighter equipment.
- Age of equipment: If your equipment’s spare parts are old and scarce, then it means you will pay higher premiums.
- Types of hazards covered: Named perils are comparatively cheaper than open perils.
- Property valuation method: Replacement value coverage is likely to cost more than the actual cash value.
- Safety and security: If your company is close to flammable and hazardous materials, the policy may differ from the rest.
- Construction: New and upgraded HVAC systems and electric wiring mean lower insurance premiums.
- Protection: Sprinkler systems and alarms can reduce insurance rates. Hence, there is no pre-determined rate that will apply for all the commercial property insurance premiums. Thus, International Risk Management Institute states that the commercial property insurance rate will vary depending on the characteristics of the property (COPE) to be insured and the level of coverage.
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