Comprehensive Guide to Commercial Property Insurance

Nov 10, 2021 | Business Insurance

One of the best investments you can make is venturing into business. Putting up a business often requires huge capital. Business owners need to invest in various business assets like buildings and equipment. How can you do business without buildings, equipment, furniture, and inventories? A business operation cannot properly function without these commercial properties. That’s why it is vital to protect your commercial properties whether you own, rent, or lease them. To help you find the best protection for your business assets, here’s a comprehensive guide to commercial property insurance.

Commercial Property Insurance and its Coverage

Commercial insurance protects a wide scope of a business’ assets against covered risks. Moreover, commercial property coverage helps business owners repair or replace damaged or stolen properties. Whether rented, leased, or owned, business personal property insurance covers the following:

  • Buildings 
  • External buildings like storage
  • Outdoor signage
  • Office equipment like computers, fax machines, phones, and furniture
  • Manufacturing or processing equipment and tools
  • Inventory
  • Furniture
  • Fixtures
  • Fence and landscaping 
  • Important business-related documents and records
  • Business income (if there’s a business interruption due to a covered cause)

Risks Covered by Basic Commercial Property Insurance

Basic commercial insurance only covers specific risks. It includes:

  • Fire
  • Theft 
  • Lightning 
  • Vandalism
  • Explosions
  • Burst Pipes
  • Storms 

What’s Excluded from Commercial Property Insurance

Every insurance contract has specific coverage and exclusions. It is important to know what risks and hazards are not covered by your insurance policy. Business owners can get separate coverage for excluded perils. Business owners can get these additional riders or endorsements on top of their insurance policy. Commercial insurance does not cover the following:

  • Property damages caused by earthquakes, wind damage, terrorism, and floods
  • Backup sewer and drain damages
  • Commercial liability claims like bodily injury or personal property damage claims
  • Professional liability claims like malpractice and negligence
  • Injured employees
  • Commercial vehicles

How Much Coverage Does My Business Need?

To determine how much commercial coverage you need, make an inventory of your business properties. Deciding how much insurance coverage you need depends on the number and value of properties your business owns or rents. Insurance companies require policyholders to submit a comprehensive inventory of properties they want to insure. A property inventory checklist makes it easier to identify which properties need coverage. As exclusions apply, some properties may not be covered by a property insurance policy. Excluded properties may need separate insurance coverage for proper protection.

When determining the value of your real estate properties, make sure to value them at their replacement cost. Valuing your real estate properties on their actual cash value may result in underinsurance. Take into consideration that inflation rates and the cost of construction materials increase as time goes by. 

Factors that Affect the Cost of Commercial Property Insurance

Insurance companies consider different factors in estimating the cost of commercial property premiums. Commercial property insurance cost depends on the following:

Chosen Policy and Coverage

Commercial property premiums differ as business owners have different needs and financial capabilities. The cost of commercial property insurance will greatly depend on the type of policy and coverage limit a business owner will choose.

Policy Limits

The higher the policy limits you choose, the higher your commercial property premiums will be. Deciding how much coverage your business needs depends on the number of properties your business owns. Just make sure that your commercial property policy limits must be able to cover all your physical business assets. 

Actual Cash Value (ACV) Vs. Replacement Cost Valuation

Insurance companies usually offer two types of claims payout. The insured can choose between actual cash value or replacement cost. Actual cash value or market value pays for the damaged or lost personal property in its replacement cost minus depreciation. Replacement cost coverage reimburses the full replacement cost of properties without depreciation. Due to depreciation, the policy limit of an actual cash value coverage is often not enough to replace a damaged or lost asset. Though replacement cost coverage is more expensive than actual cash value, it provides more protection. 

Endorsements 

Standard commercial property insurance has specific coverage and exclusions. Businesses often require different insurance coverage to ensure maximum protection. A business property owner can get additional coverage to meet their business needs. An additional coverage means additional cost to your commercial property policy.

Deductibles 

A commercial insurance policy often comes with deductibles. A deductible is the amount of money an insured agreed to pay in case of an insurance claim. Business owners can choose between these two types of deductibles:

Flat deductible

A flat deductible is a fixed dollar amount the insured has to pay for every claim. A flat deductible applies every time an insured file a claim. The insured and insurer can mutually set the deductible amount. For example, you filed a claim worth $5,000 and your property deductible is $1,000. You will pay $1,000, and the insurer will pay for the rest. 

Percentage deductible

Percentage deductible uses an agreed percentage of the property value to determine the policyholder’s deductible. For example, your percentage deductible is 3% and your property value is $1 million. In case of a claim, you have to pay $30,000. Insurance providers only pay if the repair or replacement expenses exceeded the agreed percentage deductible. 

Reminder: Consider your financial capacity when choosing the right type and amount of deductible. Opting for higher deductibles may be tempting due to its lowered premium rates. But it can cause financial problems when catastrophic claims hit you and you don’t have enough emergency funds. Choose a deductible that you can afford to pay in case of a claim.

Value of Business Assets

Business owners purchase commercial property insurance to help them replace their business assets in case of property loss or damage. The more business assets you own, the higher your insurance premium. The policy limit of your commercial property policy will depend on the amount needed to replace your business properties.

Location of Business

The location of your business is also important as it increases the number of risks present in your business. Businesses located in areas prone to natural disasters have higher-risk levels. Businesses located near the local police departments and fire stations have lower risks for theft and fire. 

Building

The commercial building you are conducting your business is also an important factor in the estimation of insurance premiums. Insurance companies take into consideration the following features of your building:

Size of the building

Size matters especially in rebuilding costs. The cost of rebuilding a large building is much higher compared to smaller ones. Higher rebuilding costs need higher policy limits which will reflect in your premium rates.

Age of the building

Older buildings tend to have more structural problems than newer ones. Structural repairs are most likely in older buildings, therefore, it increases the business owner’s risk for filing claims. Insurance companies raise premium rates to prepare for possible property claims.

Construction materials used

Buildings made out of fireproof construction materials like bricks have a lower risk of fire. Buildings equipped with fire-resistant interior doors, floors, and walls are also a plus. Properties with low associated risk have lower insurance premiums.

Installation of new electrical, plumbing, and HVAC system

Buildings with new electrical wiring lower the chances of property catching fire. A new plumbing system lowers the risk of water damage. A new HVAC system prevents carbon monoxide poisoning. System upgrades lower the chances of filing claims. An insured with less possibility of claims usually gets lower premium rates. 

Business Industry

The type of business industry you are in plays a huge part in the cost of commercial property premiums. Restaurants, healthcare facilities, and auto repair shops have a higher risk for fire. Manufacturing and processing factories are prone to equipment and tool damage. Retail and convenience stores have the highest cases of theft and break-ins. Insurance companies take into consideration the level of risks of those who will occupy the building. 

Protection Against Theft and Fire

Insurance companies give discounts to businesses with fire alarms and security systems. Installing fire alarms and sprinkler systems lowers the risk of fire while security systems lower the risk of theft. Proximity to fire stations and hydrants also lowers the chances of total property loss.

Claims History

For businesses that have been around for some time, claims losses contribute to the increase of insurance premiums. Installing fire and theft protection reduces the likelihood of claims.

What is Coinsurance Penalty?

The coinsurance penalty is the amount of money business owners need to pay when the cost of claims exceeds their insurance policy limit. Having an adequate policy limit will prevent unexpected financial loss in case of catastrophic claims. 

What Insurance do Home Based Businesses Need?

Running a business at home doesn’t remove the risks that come with your business. Damage and liability risks that come with home-based businesses are not covered by homeowners’ or renter’s insurance. The type of insurance coverage home-based entrepreneurs must get depends on the type of their business. Most home-based businesses need the following insurance:

  • Commercial Property Insurance
  • General Liability Insurance
  • Errors and Omission Coverage
  • Product Liability Insurance
  • Commercial Auto Insurance

What Insurance Coverage do Landlords need?

Renting out residential properties is still considered a business. Homeowners’ insurance coverage doesn’t protect residential homes not occupied by their owners. To ensure the protection of structures of rental homes, landlords must secure landlord insurance. Landlord insurance provides the following coverage:

  • Dwelling coverage
  • Lost rental income
  • Liability coverage

Must-have Insurance Coverage for Businesses

Commercial property insurance only covers your business’s physical assets. Every business carries different risks. Business owners must ensure their business is protected against different risks present in their workplace. Here are some of the must-have insurance coverage to ensure your business is adequately protected.

Business Liability Insurance

This insurance covers the expenses associated with third-party claims. Insurance companies offer three types of business liability insurance. 

General Liability Insurance

General liability insurance covers property damage and bodily injury claims resulting from your business operations, services, and products. It also covers claims of slander, libel, misleading advertisement, and copyright infringement.  Commercial general liability insurance covers the costs of legal defense in case of lawsuits and settlements. If you’re renting your building, it also covers the damages to your landlord’s property.

Professional Liability or Errors and Omission Insurance

Professional liability coverage protects professionals against claims of malpractice, negligence, errors, and omissions while rendering professional service. It covers financial damages settlements and the cost of defending you in court in case of lawsuits.

Business Professionals Needing E&O Insurance:

  • Accountants
  • Lawyers
  • Engineers 
  • Architects
  • Real Estate Agents
  • Consultants
  • Insurance Agents
  • Financial Advisor
  • Medical Practitioners

Product Liability Insurance

This insurance policy covers injury or property damage claims caused by the business owner’s product. Business owners can get this as a separate insurance policy or a part of general liability insurance. Though general liability provides coverage against product claims, product liability insurance provides broader coverage. Clothing, insecticides, and pharmaceutical businesses use hazardous materials for manufacturing. The use of hazardous materials poses greater liability risks and hazards. General liability insurance may not be enough to cover these businesses and needs specialized coverage like product liability. 

Water Backup Insurance

Commercial property insurance only covers some types of water damages claims. Property policy typically only covers water damages caused by water coming from top to down. It includes interior wall damage caused by rain or roof damage caused by ice dams. Damages caused by water coming from the bottom to up are likely not covered by commercial property insurance. Water backing up is usually caused by debris, heavy rain, and root invasion. Backup sewer and drain insurance cover damages caused by:

  • Backed up drains
  • Clogged sewer line
  • Failed sump pump

Workers Compensation Insurance

Nearly all U.S. states require businesses to provide workers’ compensation coverage to their employees. The federal government requires workers comp insurance to protect employees against workplace injuries or illnesses. It provides financial support to cover the costs of medical and compensation claims. Employers who fail to provide workers’ compensation insurance are subject to fines and penalties.

Business Owners Policy (BOP)

A small business with low associated risk can opt for a business owner’s policy. BOP is a combination of general liability and commercial property coverage. Getting a business owner’s policy is more cost-effective as it prevents duplication of insurance coverage. Business owners must review the levels of risk their business has. Check if the BOP policy is enough to protect your business, or you need more comprehensive coverage.

Data Breach Insurance

Nowadays, more and more businesses have become victims of cybercrimes. Cybercrimes like hacking and malware attacks can result in a data breach. A data breach is damaging to business operations and reputations. It can result in loss of business income and customer lawsuits. If your business involves confidential customer data, secure a data breach insurance for your business’s protection. Data breach insurance coverage covers the expenses of the following:

  • Customer notification
  • Services like credit monitoring and public relations.
  • Litigation expenses in case of lawsuits
  • Lost business income caused by a data breach

For businesses needing in-depth protection against cybercrimes, cyber liability insurance is more suitable. Cyber liability insurance broader protection as it covers first and third-party claims.

Commercial Auto Insurance

Most business operations include the use of vehicles. Personal auto insurance doesn’t cover company vehicles involved in road accidents. To provide coverage for your commercial vehicle, secure commercial auto insurance.

Commercial Umbrella Insurance

If your business is exposed to significant liability risks, securing commercial umbrella insurance is a good idea. Commercial umbrella insurance serves as a backup of other liability coverage. In case a liability claim exceeds your policy limit, the commercial umbrella policy covers the exceeding costs.

Natural Disasters Insurance

Natural disaster insurance will come in handy if your business is located in an area prone to natural disasters not covered by your commercial property insurance. You can buy separate coverage for protection against floods or earthquakes.

How to Choose the Best Insurance Carrier

Choosing the right insurance carrier is critical in ensuring your business’s protection. Partner with an insurance company that understands and meets your business’s protection needs. Shop around and compare different property insurance policies from various insurance companies in the market. This will help you find the best and affordable insurance coverage provider. Here are some key criteria to look for when choosing the best insurance provider:

Licensing

Before transacting with insurance carriers, check if they have a license to operate in your state. It is easier to transact with insurance companies licensed to operate in your state. Moreover, the state insurance department requires insurers to have licenses before operating in any state. To check which insurance companies are licensed to operate in your state, contact your state insurance department.

Discount Offerings

Getting discounts on premiums will save your business a lot of money. Ask your insurance agent about discounts you can avail of. Check for discount offerings like:

Welcome discounts

Most insurers offer reward discounts to attract new customers. New business owners can take advantage of this discount.

Loyalty discounts

Insurance carriers also give loyalty discounts to reward loyal customers.

Bundling discounts

Most businesses need different insurance policies. You can get bundling discounts by getting multiple insurance policies from a single insurance carrier. 

Safety discounts

Insurance providers give discounted premiums for properties that have safety preventive measures in place. If your business has a theft and fire protection system, you will most likely qualify for a safety discount.

Insurance Company Reputation and History

By checking the reputation and history of the insurance company you’re interested in, you will learn details about the company such as:

  • How long the business has been established
  • Their values, mission, and vision
  • Company Leaders
  • Financial strength
  • Insurance products they offer
  • Community involvement
  • Which states they offer their products

Financial Strength

You secure insurance coverage to protect the financial interests of your company. You need an insurance carrier that has excellent financial strength. An insurance company’s financial strength shows in its ability to pay insurance claims. You can check the financial strength ratings of insurance companies from credit rating agencies like A.M. Best and Standard and Poor’s Global Ratings. 

Variety of Coverage Offerings

Every business has unique risks. It is best to get coverage from an insurance company that offers a variety of coverage. This will ensure you will get appropriate coverage for your business needs.

Coverage Costs

Numerous insurance companies offer different types of business insurance. Coverage and price vary from one insurance company to another. Shop around, compare coverage and quotes to get excellent and affordable insurance coverage. Ideally, you should get at least three quotations from different insurance providers for comparison. 

Ease of Doing Business

Running a business is already tiring and time-consuming. Working with an insurance company that provides fast and convenient transactions saves you more time and energy. Check insurance companies if they offer the following:

  • Online bills payment and inquiry
  • 24/7 customer service
  • Online claims reporting
  • Social media platforms
  • Policy inquiry and changes

Customer Feedback

Customer feedback is one of the most credible sources to determine the quality of service of an insurance carrier. Plus, customer reviews show how an insurance company deals with customers and their claims.

Claim Settlement Process

Dealing with a workplace accident is already stressful. You would want to save yourself from further stress of complicated claims and settlement procedures. It is more convenient to work with an insurance provider with an efficient and quick claim settlement process.

Business asset protection plays a major role in the success of any business. As they say, business is a risk. Business owners face various risks, from operation to profit to claims and liabilities. Lessen your risks by purchasing different business insurance coverage for your business. Claims and lawsuits can surely bring a big blow to any business. Whether you own a small or big business, make sure your business is protected.

Advantage Insurance Solutions partners with over 40 insurance carriers in the United States to provide protection for many types of businesses. We work with trusted insurance providers in order to give reliable and quality protection to our clients.

Call us now and we’ll make sure to get you the best value for your insurance coverage. We won’t disappoint!