Commercial Property Insurance: A Quick Guide

If you have commercial property insurance, you are covered against damages that are caused by a storm, fire or another disaster. In many a cases, theft is also covered.

Types of Commercial Property Insurance

Commercial property insurance can be divided into three main types.

  • Basic form policy – which protects you against common incidents like storms and fires
  • Broad form policy – which protects you against a structural collapse, water damage, sprinkler leakage and damages caused by sleet or snow
  • Special form policy – which covers all events other than the ones that are specifically mentioned as excluded; these include earthquakes, floods, general wear and tear, nuclear disaster, war and terrorism

What does a commercial property insurance policy pay out?

A commercial property insurance policy pays out in the form of actual cash value, replacements costs or a combination of the two.

  • Replacement costs coverage – In this case, you are paid an amount required for repairing or rebuilding your property; the value of your land is not factored in.
  • Actual cash coverage – In this case, you are paid out the actual value of your property, which is determined after factoring in depreciation. Depreciation is a decrease in market value because your property is subject to wear and tear. Please note that if your business is completely destroyed, then this kind of coverage may not be enough to rebuild your business.

What is generally covered by a commercial insurance policy?

Typical commercial property insurance offers the following kinds of coverage.

  • A building that you use, but don’t own, is usually covered.
  • A newly constructed or acquired building is insured if you add it within a certain time limit to your existing policy. This period is usually limited to 30 days, upon the expiration of which, you’ll probably have to buy a separate policy for your new building.
  • The personal properties of your employees are covered if they are on office premises, but the total amount is limited.
  • Business interruption converge is provided to pay for the income you’d lose if your daily operations are affected or cannot be performed.
  • Extra expense coverage can help you get additional amounts for normalizing business operations after damage.
  • Coverage for valuable papers may be provided, but the amount is limited.

Additional Considerations

  • Go through your policy carefully before buying. In many a cases, incidents such as floods and crimes are not covered, and you may need other policies to fully protect your company.
  • Even if your business is set up in multiple locations, one policy should cover all sites as long as the risk profiles of the areas are not different. In case you have rented out office space, then the building owner’s insurance won’t cover any property which belongs to you. So you’ll have to get a separate tenant policy for covering your furniture, merchandise and machinery.