If your company’s building burned down tomorrow, do you have enough coverage?
You may think you do, but commercial property insurance can be tricky. The costs for rebuilding your restaurant may be covered, but does your policy cover the contents inside? What about your property’s exterior?
What if you’re renting a commercial space, or running your business out of your home? Do you have the right policies to protect you from potential damages and liabilities?
Selecting the right commercial property coverage for your needs can turn a crushing financial loss into a mild inconvenience.
In this post, I will discuss many of the intricacies of commercial property insurance, including:
Let’s get started with this post.
What Is Commercial Property Insurance?
Commercial property insurance (also known as business property insurance) protects commercial properties.
While homeowners insurance, commercial property insurance comes with multiple policy options to fit your needs. Unfortunately, commercial property insurance policies are so numerous and specific that you need to pay close attention to what is covered and what's not.
What Constitutes a Commercial Property?
A commercial property is a building where at least half of its floor space is used for commercial activities, like restaurants, retail stores, and other places that provide products or services. Commercial property includes:
Who Needs Commercial Property Insurance?
If you rent or own commercial property or run a business, you need to consider getting commercial property insurance. It can save the livelihoods of small business owners when they have to rebuild property after disaster strikes. It also keeps multi-billion dollar corporations from suddenly having to declare bankruptcy.
Even if you are a small business owner with no employees, you should consider commercial insurance policies.
Does Commercial Property Insurance Cover Your Home-Based Business?
Home insurance policies usually don't protect businesses you’re running out of your residence. You will likely need to purchase a business owner’s policy.
To save money, you can bundle both of these. A business owner’s policy provides business property insurance and general liability insurance. The policy covers damages, stolen business property, and the cost of any lawsuits you may incur. Your business owner’s policy also covers business income insurance, rounding out all the coverage most home businesses require.
Owned Property Insurance vs. Rental Property Insurance
If you own your company’s property, you should consider getting a policy that covers the building and all its contents.
If you’re just renting the office space, you can get a policy covering only the items you own. Depending on your relationship with the building owner, you might also have to insure any leased equipment.
What’s In A Commercial Property Insurance Policy?
Commercial property insurance protects your company's physical assets from perils like:
You can customize your commercial property insurance policy to cover nearly every tangible asset your company owns. These include:
Some items on this list are automatically covered. Others are in a gray area or require additional forms of commercial property insurance. I’ll get to those later.
First, you should know what items are already covered—and what you might need more coverage for.
Understanding Business Contents Insurance
One key aspect of business insurance is your business contents policy. Your contents are items that aren’t attached to the building itself.
Let’s say you own a restaurant. Your restaurant contains two different freezers: a walk-in freezer, where the bulk of your frozen food resides, and a standard freezer for more immediate access to items your cooks need right away. In most cases, your walk-in freezer would be considered part of the building, while your standard freezer would fall under “business contents.”
Inventory your “contents” and estimate their value. This will help you understand how much business contents insurance you need. There are plenty of gray areas when it comes to business contents. If you’re unsure about certain assets, contact your insurance agent for clarification.
Business Contents Insurance Also Extends Outside
Insurance can cover everything your business owns, both inside the property and (usually) within 100 feet of the premises. If you purchase a business owner’s policy (the policy that bundles commercial property insurance with general liability insurance), you have coverage for:
For example, if a customer gets their laptop stolen while using the washroom, your policy will cover it and pay them to get a replacement. Read through your business insurance policy to determine what is and isn’t covered.
Additional Commercial Property Insurance Coverage To Consider
You have to customize your commercial property insurance to best fit your needs. You’re probably going to need more coverage if:
Here are a few types of additional business property insurance coverage to consider:
Depending on where you live, you may require additional insurance for hazards like hurricanes, earthquakes, floods, and tornadoes. Your standard commercial property insurance policy usually won’t cover these natural disasters. Shop around, or contact your insurance agent to add a rider for the disaster coverage you need.
Business Interruption Insurance
If your office building is damaged in a fire, a natural disaster, or for something else you’re covered for, business interruption insurance replaces your income while you’re unable to operate. The amount paid out usually depends on your businesses’ past financial records.
This part is worth repeating: this insurance only pays if the cause of your loss of income is covered in your underlying policy. This is why insurance companies weren’t paying businesses that had to close during the pandemic. To know exactly what is or isn't covered, read through your policy or contact your insurance provider.
Inland Marine Insurance
While commercial property insurance protects your business property while it’s on your location, inland marine insurance covers property outside of it.
Inland marine insurance is a type of “floater” policy. This means it insures your property wherever it goes. If you own a landscaping company, or a shipping or construction business, this coverage can save you from a ton of heartache. Depending on what you need, inland marine insurance can protect:
Equipment Floater Insurance
If you run a photography studio and carry around a lot of equipment both on- and off-site, you should get equipment floater insurance. Floater insurance covers equipment you take from one location to another in case it gets damaged or stolen.
Equipment floater insurance covers a wide range of equipment: everything from lawnmowers to tripods, from toolkits to forklifts. Commercial property insurance usually doesn't include this equipment because of the risks it faces in transportation, and also because you rarely keep many of these items in the same place. Equipment floater insurance sometimes falls under the umbrella of inland marine insurance.
Commercial Auto Insurance
If your small business owns a company car, you need commercial auto insurance. The only states that don’t require it are Virginia and New Hampshire–and even if you live there, you should still get a policy.
Commercial auto insurance helps cover any property damage, medical payments, and legal expenses if your company's car is involved in an accident. You should get commercial auto insurance if your business involves driving to and from work sites, transporting employees, clients, equipment, tools, or other products.
Commercial auto insurance doesn’t cover personal vehicles. If you or your employees use your personal vehicles for business reasons, you should purchase hired and non-owned auto insurance to ensure coverage.
Schedules And Riders
Schedules and riders cover property by getting customizations for specific situations.
A schedule option means your commercial property coverage will include specific items named in your policy. If you own or have to rent an expensive piece of equipment necessary for your daily operations, but the required coverage goes beyond your limits, add a schedule to your policy.
A rider protects you from situations standard policies exclude. For example, if you run a landscaping company, you could add a rider to cover the equipment you’ll use on work sites.
What Doesn’t Commercial Property Insurance Cover?
Business property insurance policies protect you from many situations where you can incur a huge loss. However, they don’t cover you for everything. Here are a few things that commercial property insurance doesn’t cover:
Many states and policies include liability insurance in commercial property insurance. However, this isn’t always the case, and sometimes you don’t have the right kind of liability insurance or enough of it.
Liability insurance protects you and your company from a financial loss if a client or customer gets injured on your property. You also get protection if your client faces a loss due to a mistake you or one of your employees made.
Liability insurance is important to have because your business can end up in a lawsuit even if it’s not directly responsible for an incident. For example, if a customer in your convenience store slips on a wet floor and injures themselves, your business could be required to cover their medical expenses.
General Liability Insurance
Businesses often purchase general liability coverage to protect them from common liability claims. It’s a must if you rent or own commercial property, have a location accessible to the public, and work closely with or handle property for customers or clients.
When you bundle general liability coverage with your commercial property insurance, it becomes known as your business owner’s policy.
Other Types Of Liability Insurance You May Need
Here are a few, but not all, other forms of liability insurance you may need for your business:
Flood insurance is usually an add-on to commercial property insurance. If you live in a FEMA-designated flood zone (an area the Federal Emergency Management Agency considers a “high-risk” flood zone), you’ll likely need flood insurance to operate. Even if you don't, it doesn’t hurt to have.
Hail And Windstorm Insurance
Your commercial property insurance might not cover hail or sudden windstorms. If you live in a high-risk area, you should add this to your current coverage.
Workers’ Compensation Insurance
Workers’ compensation insurance covers your employees if they suffer from a work-related illness or injury. It helps protect your business and your employees by covering:
Different states have different workers’ compensation laws. Review the laws in your state to determine what you require.
Damaged Customer Property
Commercial property insurance alone doesn’t cover a customer’s damaged property. For that, you need general liability insurance. For example, if you’re installing an above range microwave, and it falls and cracks your customer’s stove top, you could end up paying out of pocket for repairs without liability insurance.
If you run a moving company and one of your employees steals jewelry from your customers, it won’t be covered under commercial property insurance. You’ll need a fidelity bond instead. A fidelity bond protects your business and customers against employees who commit theft, fraud, or forgery against a customer or your business.
If you run a construction company, one of the last things you want to deal with is your forklift breaking down in the middle of a project.
If your business involves operating expensive equipment, you should get equipment breakdown coverage. Equipment breakdown coverage pays for replacing malfunctioning equipment after an electrical or mechanical failure.
Other Things Commercial Property Insurance Doesn’t Cover
Here are a few more items not covered by your standard business property insurance:
How Much Does Commercial Property Insurance Cost?
According to Insureon, the median commercial property insurance cost for small businesses is $63 per month or $755 per year. However, major corporations could pay $500,000 per year, depending on their needs.
On average, businesses pay between $1,000 and $3,000 for each $1,000,000 of coverage.
Figuring out how much business property coverage costs depends on numerous factors, including:
As with finding the cheapest homeowners insurance policy, the trick is to do extensive research, compare prices, and know what you need (and what you don’t).
Final Thoughts On Commercial Property Insurance
Commercial property insurance protects your property and vital equipment 24/7. Determining what your coverage includes and what else you may need can be stressful. However, it’s worth figuring out–especially if there’s ever an incident on your property.
Building and running a business or managing a property is hard work. Don’t let something trivial, like failing to get a rider or an endorsement, mean the difference between a minor inconvenience and financial ruin.