Commercial Property Insurance in 2023

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No matter what type of business you own, every element of the operation is important to its success. One of the most crucial assets for any business is the commercial property that it uses to provide services or manufacture products. That’s why it can be devastating when adversity leads to a damaged property. Whether it’s theft, fire, weather damage, or a simple accident, losing inventory, equipment, or other property can put a major dent in your business operation.

In some cases, it can even mean the difference between staying in operation and having to shut your doors for good. That’s why it’s important to have the right insurance in place to protect your business. Learn more about commercial property insurance to secure your investment.   

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What is Commercial Property Insurance? 

Commercial property insurance helps you cover the cost of repairs or replacement for buildings, equipment, inventory, and other business-related properties. It helps to protect your owned or rented building, as well as the tools and equipment you use to operate your business. In the event that your property is damaged or destroyed, this insurance can help to cover the cost of repairs or replacement.

Without this type of coverage, you could be left with substantial out-of-pocket expenses in the event of a covered loss. As a result, commercial property insurance is an important part of any business risk management strategy. 

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Frequently Asked Questions (FAQ)

What are the different kinds of commercial property insurance policies?

There are three types of commercial property insurance policies depending on the perils/accidents covered. They are: 

Basic form policies, also known as “named perils policies,” only cover the perils that are explicitly listed in the policy. The insurance carrier can refuse to pay for the damages if they are not included in a policy.  

Broad form policies cover additional hazards like water damage, structural collapses, falling objects, etc.  

Special form policies are comprehensive policies in which the excluded perils are listed rather than the included perils. While these policies tend to exclude things like earthquakes and floods, they generally provides more coverage than the other two policies.  

Why do you need commercial property insurance?

Commercial property insurance typically covers commercially owned or rented property from disasters such as fire explosions, storms, theft, and vandalism. You need this type of insurance to secure your investment if any mishaps occur in the future. 

What are the most common types of commercial insurance?

Property, liability and workers compensation are the most common type of commercial insurance that any business requires. Property insurance covers damage to your commercial property, liability insurance covers damage to third parties and worker’s compensation insurance is for the protection against workplace injuries to your employees. 

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What Does Commercial Property Insurance Cover? 

Commercial property insurance helps protect the physical location of your business from damage or loss. This type of insurance can cover items such as: 

  • Office Building
  • Furniture
  • Inventory 
  • Machinery, etc.
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    What Type of Damages are Covered Under Commercial Property Insurance? 

    There are many recommended policies as per the insurance company that provides commercial property coverage. But here’s a list of some of the perils and the basic causes of loss: 

    • Fire 
    • Lightning 
    • Explosion and Smoke 
    • Windstorms/ Hail
    • Riots and Vandalism
    • Damage caused by an aircraft or vehicle and falling Objects 
    • Sprinkler leakage /Water Damage (in the form of leakage from appliances) 

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    What Doesn’t Commercial Property Insurance Cover? 

    One of the most common exclusions is for loss caused by earth movement, such as earthquakes or sinkholes. Other exclusions may include: 

    • Water damage caused by flooding, 
    • War or terrorism 
    • Nuclear accidents 
    • Intentional damage 
    • Normal wear and tear 

    While these excluded events can cause significant damage to your property, commercial property insurance will not cover the cost of repairs. So, it’s important to be aware of exclusions before you purchase a policy. By understanding what’s not covered, you can make sure you have the protection you need for your business. 

    What Business Requires Commercial Property Insurance Cover? 

    Every business is unique with the varieties of products or services it offers, or the kind of capital it utilizes. But whether it’s a small or a large business, risk is inevitable, and so this insurance is crucial. Businesses that require this coverage include: 

    • Commercial real estate  
    • Contractors 
    • Financial services 
    • Garages 
    • Healthcare 
    • Manufacturers 
    • Personal care services 
    • Pet care services 
    • Printers and publisher 
    • Professional services 
    • Religious and cultural organizations 
    • Restaurant and food service 
    • Retail 
    • Service businesses 
    • Technology services 
    • Wholesalers and distributors 
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    How Should a Commercial Property Owner Determine the Value of Their Property? 

    Owners must have a clear idea of the value of their commercial property before they can select the insurance coverage they need. 

    There are three common choices: replacement cost, actual cash value, and market value cost 

    1. Replacement Cost 

    The most common cost-determining method. It’s the amount it would cost to replace your property if it were destroyed. The cost replaces your property with new construction and does not account for depreciation. 

    2. Actual Cash Value 

    This method takes depreciation into account when valuing the property. This means the insurance company will pay to replace the damaged property, minus the percentage of the total life that the property would have had. Suppose a commercial property owner has a building that is five years old and sustains damage in a fire. The replacement cost to repair the damage is $100,000. The building would have had a life expectancy of 30 years, so the depreciation would be $100,000 x (5/30), or $16,667. The ACV of the loss would be $100,000 – $16,667, or $83,333. The insurance company would reimburse the policyholder for this amount. 

    3. Market Value Cost Method 

    The market value method is another way to value commercial property. This method looks at the current market conditions to determine the present worth of the property. Therefore, it is important to have an accurate value of the commercial property in order to insure it properly. If the commercial property is undervalued, the owner may not have enough coverage in the event of a loss. 

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