Having adequate commercial property insurance can mean the difference between a minor disruption in operations and a significant financial loss.
Commercial property insurance provides protection for a wide range of industries and businesses, from small to large to highly complex.
This insurance policy safeguards your company’s physical assets. If a fire breaks out, a pipe bursts, a storm blows through, or a thief strikes, commercial property insurance will help pay for the damage to your commercial property.
A business, large or small, has physical assets that should be protected, so it is worthwhile to purchase commercial property insurance. This coverage is also known as commercial property insurance.
Commercial Property Insurance meaning
Commercial property insurance protects a business by covering all or part of the costs if a covered loss occurs. In this way, whether you own, rent, or lease the business building, property insurance can help keep it open if a loss occurs.
Businesses can purchase commercial property insurance for basic causes of loss, such as fire insurance, but the majority of businesses opt for a more comprehensive plan known as a Business Owners Policy or BOP.
Business property insurance protects your company’s physical assets from unforeseen events such as fires, windstorms, theft, and vandalism. Physical assets covered by commercial property coverage could include business property you own or rent, office equipment, furniture, fixtures, inventory, and other items you rely on to run your business.
Business property insurance can also provide a competitive advantage by assisting you in identifying and managing property-related risks specific to your company, allowing you to focus on your business. Travellers have experience in a variety of industries, assisting businesses in identifying and mitigating property risks.
When an unexpected loss disrupts or even shuts down your business, your ability to recover quickly is critical. Travellers’ commercial property insurance can provide the assistance and funds required to get your business back up and running.
What Does Commercial Property Insurance Cover?
There are three different levels of commercial property coverage. Each level protects against different causes of damage or loss.
- Basic form policies provide the least coverage. They usually cover damage caused by fire, windstorms, hail, lightning, explosions, smoke, vandalism, sprinkler leakage, aircraft and vehicle collisions, riots and civil commotion, sinkholes, and volcanoes.
- Broad form policies usually cover the causes of loss included in the basic form, as well as damage from leaking appliances, structural collapses, falling objects, and the weight of ice, sleet, or snow.
- Special form policies provide the most coverage. These policies usually cover damage from all causes of loss, except those specifically listed in the policy. These are called policy exclusions. Most policies exclude damages from floods, earth movement, war, nuclear disaster, wear and tear, and insects or vermin.
Commercial Property Insurance Cost
The cost of commercial property insurance is primarily determined by the value of the company’s property and assets. A home office owner would pay far less in commercial property insurance than a business with its own office building, but both have a business property that could be covered by a commercial property insurance policy.
Other factors that insurance companies consider when pricing commercial property insurance policies are as follows.
- Geography
- Size of business premises
- Safety and security
- Age of building
- Fire protection
- Property valuation method
- Types of hazards covered
Geography
This can assist your provider in determining which environmental risks your company may face, such as flooding and tornadoes. Premiums are also affected by land value and local law.
Size of business premises
A large office or factory structure will almost certainly cost more to insure than a single rented room.
Safety and security
Is your company in a high-crime area? Is your company in possession of hazardous materials or engaged in hazardous activities such as mining? Do you have strict security measures in place? All of these factors can have an impact on insurance rates.
Age of building
Because older buildings are more vulnerable to certain types of damage, they may cost more to insure. A fire, for example, caused by faulty electrical wiring could result in costly repairs.
Fire protection
Property near a fire station and fire hydrants may be less expensive to insure. Sprinkler systems and fire alarms also help to lower insurance costs.
Property valuation method
Actual cash value coverage is more expensive than replacement value coverage. The former compensates for the purchase price of a brand-new item, whereas the latter compensates for the item’s depreciated value.
Types of hazards covered
A policy that covers open perils is more expensive than one that covers named perils. Except for those specifically excluded in the policy, open perils coverage protects against all losses. Only losses listed in the policy are covered by named perils coverage.
Types of Commercial Property Insurance
There are two types of commercial property insurance:
- buildings insurance
- contents insurance
Buildings insurance
Buildings insurance pays for the cost of repairing or rebuilding your commercial property if it is damaged or destroyed.
Even if you own your business premises outright, you should consider buildings insurance to cover the cost of repairs or rebuilding.
If you rent your business space, your landlord is responsible for buildings insurance; however, you should consider purchasing content insurance to protect your inventory and equipment.
You should always insure your commercial property against the cost of rebuilding it, not its sale price or current market value.
Most building insurance policies do not cover:
- General wear and tear – Things that happen to your property over time, like carpets wearing thin
- Acts of war or terrorism – Policies typically exclude terrorism-related damage, but for an additional premium, specialist insurers can provide coverage for commercial properties.
Contents insurance
If your personal belongings are stolen or damaged by a covered peril, such as a fire, contents insurance can help pay to replace or repair them. So, if someone breaks into your house and steals your laptop, or if your clothing and furniture are destroyed in a fire, contents insurance may help cover the loss.
There are two types of business equipment contents insurance policies:
- Replacement cost coverage helps reimburse you for the cost of replacing a damaged item with one of similar type and quality.
- Actual cash value coverage usually pays you the cash value of the contents you insured, but factors in the depreciation of the item.
Here’s an example of how these two types of coverage interact. Assume your five-year-old television was stolen and you filed an insurance claim. A contents insurance policy with actual cash value coverage will only reimburse you for a portion of the cost.
Meanwhile, a policy with replacement cost coverage would most likely provide you with enough coverage to purchase a replacement of the same quality at today’s price.
Who Should Get Commercial Property Insurance?
All businesses need commercial property insurance, especially those with buildings, critical equipment and assets, or access to customers and suppliers. Without commercial property insurance, you are responsible for paying for any damage to your business equipment and property out of your own pocket. In a worst-case scenario, like a massive fire, this could put you out of business without insurance as a financial backup.
How to buy commercial property insurance
Property insurance for small businesses can be purchased separately or as part of a comprehensive Business Owner’s Policy that includes both property and general liability coverage. Your insurance agent can assist you in tailoring your coverage to address the specific risks confronting your company, including determining the type of property insurance coverage you may require.
As already stated, Insurance companies typically offer two types of coverage: replacement cost and actual cash value.
- Replacement cost: Pays to repair or rebuild property with materials of the same or comparable quality.
- Actual cash value: Pays the current value of the damaged property, and the cost to rebuild or replace property, generally replacement minus depreciation.
FAQs about Commercial property insurance
Is property insurance legally required in the UK?
Many types of commercial insurance are optional. However, while it is not required by law, all business owners should have a property and casualty insurance policy. Additionally, your landlord or lender may require you to have property insurance in order to protect your investment.
What does commercial property insurance cover?
Commercial property insurance safeguards your company’s physical assets against a variety of unforeseen events, including fire, explosion, storms, theft, and vandalism. Additional coverage for floods, earthquakes, equipment breakdown and other direct causes of loss to your business is frequently available.
Why do businesses need commercial property insurance?
Accidents and unexpected events occur and can cause significant damage and disruption to your business. A commercial property insurance policy can help you recover quickly by providing financial assistance.
What is the cost of commercial property insurance?
Because every business is unique, there is no one-size-fits-all solution. Your cost will be determined by the specifics of your business and the level of protection you require. The nature and size of your business, the number and condition of your facilities, loss protection and prevention practices, and so on are all factors that may influence your costs. The best way to determine your cost is to request a quote from your professional insurance representative.
