Commercial property insurance protects small businesses from financial losses they would otherwise sustain when buildings, equipment, and other property are damaged or destroyed by a fire or other peril.
The costs associated with repairing, rebuilding, or replacing damaged property can be substantial. Insurance may pay those costs in full or in part so businesses can keep their operations going and avoid a large out-of-pocket expense. Without commercial property insurance, some businesses might not survive a physical loss.
Most commercial property insurance falls into one of four general categories: direct damage, time element, inland marine, and crime insurance. The type of insurance your company needs depends on your industry, the size of your business, and the nature of your operations.
- Business property insurance covers part or all of the costs incurred when your business property is damaged.
- Business property insurance usually has three main types: time element, business income, and extra expense.
- Inland marine coverage is helpful if your business has off-site assets or moves company property on a regular basis.
- Insurers offer insurance against loss due to criminal activity.
Insurance Coverage Against Direct Damage
The most common reason to buy commercial property insurance is to protect your business against direct physical damage to buildings or personal property. Property insurance covers part or all of the cost of repairing or replacing business-owned property that’s been damaged by a fire, lightning, or other insured peril.
Property insurance covers loss or damage to insured property if the loss or damage results from a peril insured by the policy. Commercial property policies and BOPs may be written in two ways: all-risk or named perils. Basically, all-risk policies cover losses caused by anything your policy doesn’t exclude, while named-perils policies cover only what’s listed in your policy.
Because of that, all-risk policies tend to cover more incidents than named perils policies. For the sake of argument, imagine there are 100 perils in the world. If an all-risk policy excludes 10 perils, then the other 90 are covered. If a named-peril policy lists 10 covered perils, then the other 90 are not covered.
Both all-risk and named perils policies may exclude damage caused by floods or earthquakes. Flood insurance is available from the federal government and earthquake insurance can be purchased from an insurer.
Because named-peril policies tend to cover fewer perils, they tend to be cheaper than all-risk policies.
Many property policies exclude damage to mechanical, electrical, computer, and other equipment caused by the equipment’s breakdown. You can insure your business against equipment breakdown losses by purchasing equipment breakdown coverage.
Time Element Insurance
Time element insurance covers financial losses resulting from you not being able to use your business property as you normally would because it’s damaged. It’s called “time element” insurance because your losses are based on the amount of time your business needs to repair or replace damaged property. The most common time element coverages are business income and extra expense insurance.
Business Income Insurance
Business income (also called business interruption) insurance covers income your company loses when it’s forced to shut down because of the physical damage to your business property. Income losses are covered only if the property damage is caused by a peril insured by the policy. Covered expenses may include:
- Utility bills
- Mortgage payments
- Rent payments
Extra Expense Insurance
Extra expense insurance covers costs over and above what you’d normally spend as you work to restore your business property after physical damage happens. An example is the cost of renting a large storage container so you can safely store your stock and keep your business running because the wind ripped the roof off your warehouse. Other expenses that may be covered by your policy include:
- Relocation to a temporary property
- Modifying a temporary location
- Overtime wages paid for more hours worked
- Rent at a temporary location
- Hiring additional staff for a temporary location
- Advertising related to your company’s temporary changes as a result of the damage
Inland Marine Insurance Coverage
A typical business owner's policy or commercial property policy provides little or no coverage for property situated at another location, such as a job site, or while it’s in transit to or from your premises and another location. If your business regularly moves property from place to place, inland marine insurance may be a good fit.
Despite its nautical-sounding name, inland marine insurance covers property transported over land (not water). It’s an offshoot of ocean marine insurance, which covers ships and cargo transported over the ocean. Inland marine insurance is a broad category, and the type of coverage you need depends on the property you want to insure.
For example, contractors can insure tools, machinery, and equipment they use at job sites under contractor equipment coverage. A theater company can cover its costumes, musical instruments, lights, and other equipment under entertainment equipment insurance.
Inland marine policies are also known as “floater policies” because they cover moveable property.
Property Insurance for Criminal Activity
Many businesses suffer financial losses due to theft, robbery, and other acts committed by criminals. Most commercial property policies won’t cover theft committed by employees. They may also exclude the theft of money, securities, and money notes. You can protect your business from financial crimes by purchasing crime insurance.
There are many types of crime insurance and the coverages you need depend on the nature of your business. For instance, retail stores are prone to theft by employees and may benefit from employee theft coverage. Restaurants, laundromats, and other businesses that deal in cash may need money and securities coverage. Here are some common crime coverages:
- Employee Theft Coverage: Covers employee theft of money, securities, or other business property.
- Forgery: Covers financial losses you incur because someone has forged or altered a check or other financial instrument.
- Theft of Money and Securities: Covers losses caused by the theft of money or securities from your premises or a financial institution by someone other than an employee.
- Computer Fraud: Covers financial losses you sustain when someone uses a computer to fraudulently transfer money, securities, or other property from your financial institution. For instance, a former customer hacks into your computer system and transfers money from your business account to the fraudster.
Other Types of Property Insurance
Does your business own a boat or an airplane that you want to insure for property damage? If the answer is yes, don’t rely on your commercial property policy or BOP for coverage. Most property policies exclude most self-propelled aircraft and watercraft. To insure your plane or boat or physical damage, you may want to consider aircraft or watercraft hull insurance.
Aircraft Hull Insurance
Aircraft hull insurance covers physical damage to planes, jets, and other aircraft. Various options are available but the broadest is ground-and-flight insurance. It covers damage by any peril not specifically excluded, whether the aircraft is on the ground or in the air. Aircraft are insured up to the value stated on the policy, so the value must be accurate. Aircraft hull insurance can be paired with aircraft liability insurance.
Watercraft Hull Insurance
Watercraft hull insurance typically covers damage by an insured peril to the boat, permanently attached equipment, and propulsion equipment. Coverage may be based on the vessel’s agreed value (the value stated in the policy) or its actual cash value (ACV). Agreed value insurance usually costs more than ACV insurance but provides better coverage.
How To Buy Property Insurance
Commercial property insurance is widely available from many insurers, both large and small. You can buy a policy through an agent or broker or directly from an insurer. Many agents and insurers offer free quotes online.
If you’re buying property insurance for the first time, find a licensed agent to guide you through the application process. An agent can shop around on your behalf and help you compare insurers’ rates and terms.
Once you’ve purchased insurance, you’ll need to reassess your coverage every year. Businesses change over time and the policy you bought last year may no longer meet your needs.
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