Everything You Need To Know About Small Business Property Insurance
What is commercial property insurance, what damage does it cover, and do you need it? Read our guide to find out!
Commercial property insurance protects businesses from accidents, theft, fire, and other disasters. If you have a physical store, office, warehouse, or equipment, commercial property insurance should be part of your business plan.
Table of Contents
- What Is Commercial Property Insurance?
- Who Needs Commercial Property Insurance?
- How Does Commercial Property Insurance Work?
- What Does Commercial Property Insurance Cover?
- What Is Inland Marine Insurance?
- How Much Does Commercial Property Insurance Cost?
- How To Get Commercial Property Insurance
- Property Insurance VS. Business Owners Policy (BOP)
- Additional Types Of Small Business Property Insurance
- Commercial Property Insurance FAQs
What Is Commercial Property Insurance?
Commercial property insurance is coverage that protects your business assets and property. It’s one of the most important types of insurance policies that all businesses should consider purchasing.
Commercial property insurance is available from all the best insurance companies. It’s often bundled with another type of key coverage, general liability insurance. These two types of essential coverage are often sold together as a business owners policy or BOP.
Commercial property policies typically provide compensation for damage to buildings as well as damage done to fixtures, inventory, and property inside the building.
Who Needs Commercial Property Insurance?
Almost every business with a physical location should have a commercial property insurance policy to protect their business assets. Your commercial property policy will protect your building and almost everything inside it, including your inventory, equipment, furniture, fixtures, electronics, and more.
If you rent, rather than own, your business space, you still can protect your business property with a slightly different type of coverage. The best business renter’s insurance policies offer excellent coverage at a reduced cost. Your landlord may require you to show proof of insurance.
How Does Commercial Property Insurance Work?
Commercial property insurance protects your business’s long-term financial health. It’s your responsibility to make sure your most important assets are included in the policy’s coverage.
Policies are often specific in what is covered and what is. To have a valid claim, the incident that triggered the claim mustn’t be excluded in the fine print of your contract. Damage from fires, for example, is typically covered, while flood damage is not.
However, even if your commercial property policy includes protection from fire damages, the policy may make distinctions between a natural fire, an electrical fire, a fire caused by the mishandling of volatile chemicals, and so on. Ask your insurance agent or broker to walk you through the clauses of your policy so you understand what possible scenarios wouldn’t be covered by your policy.
What Does Commercial Property Insurance Cover?
Should your business and property sustain physical damages within the conditions that are covered according to your commercial property insurance contract, you’ll be compensated for the costs that go into either fixing or replacing what you claim. When you file a claim, you can choose to receive the cash value of the destroyed items or the replacement value (how much it would cost to replace new).
Read on to see what is and isn’t typically covered by commercial insurance policies.
Again, be certain to verify your own coverage.
What Property Insurance Covers
In general, commercial property policies will cover accidents, theft, and damages to your building and the business assets inside your building. In most cases, commercial property insurance policies will cover damages from the following:
- Theft and vandalism
- Tornadoes or hurricanes
- Burst pipes
- Aircraft or other vehicles crashing into your building
- Riots/civil unrest
What Property Insurance Doesn’t Cover
Most commercial property insurance policies don’t cover:
- Sewer backups
- Damage from insects and rodents
- Rust, rot, and mold
It’s also important to note that commercial property insurance will only cover your property. If a customer or vendor’s property is damaged while they’re on your premises due to one of the causes listed above, this insurance won’t cover the costs of their property. You’ll need third-party liability insurance for that.
Sometimes coverage depends on how the damage occurred. For example, if a toilet backs up and sewage damages your property, it isn’t covered. But if that same toilet backs up because of vandalism, that is covered.
Since coverage can vary, it’s important to learn exactly what is and isn’t covered by your own policy.
What Is Inland Marine Insurance?
Inland marine insurance is the most misunderstood type of business insurance coverage. If your business has nothing to do with water, you may think you don’t need inland marine coverage. You may want to rethink that.
A very quick history lesson will explain why: Inland marine insurance originally protected cargo that had been shipped by sea as it was transported over land. These days, inland marine insurance protects your business property whenever it’s in transit by truck or train or stored somewhere away from your business property.
Keep in mind that most commercial property insurance policies cover your building and its contents.
If you routinely use or store property away from your primary business location, if you store high-value equipment or tools in a commercial vehicle that travels frequently, or if you ship high-value property, an inland marine insurance policy can extend your coverage. Inland marine insurance can also provide protection for another person’s property that is stored at your business location.
Businesses in industries like the following often use inland marine insurance:
- Food carts and caterers
- Artists and antique dealers
- Trade shows
- Mobile services
Ask your insurance agent if your business is a good candidate for inland marine insurance.
How Much Does Commercial Property Insurance Cost?
The cost of commercial property insurance will be different for every business. Insurance companies typically provide personal price quotes that take into account your business type, size, number of employees, location, and other factors.
Small businesses can expect to pay annual premiums of around $1,000 to $3,000 on average for a commercial property insurance plan. Insureon researched the market’s rates in 2022 and found that the median cost for commercial property insurance with a $60,000 limit and a $1,000 deductible came out to $63 a month — only $755 a year.
Ultimately, the cost of business insurance is going to depend on factors such as:
- How much property belongs to your business
- How expensive your business’s property is
- How much coverage you decide to pursue
- What materials your building is constructed out of
- The age of your building
- The size of your business
- Your geographical location
If you live in an area that’s prone to natural disasters or have equipment that’s expensive to replace, your premium is going to reflect those financial risks.
How To Get Commercial Property Insurance
Once you’ve decided to invest in commercial property insurance, you’ll now need to decide what type of coverage is best suited for your business and make a list of assets you’d like to protect. Once you’ve determined this, you’ll want to look into the best commercial property insurance available.
If you’re starting the process, you might find it helpful to learn more about the steps needed to buy insurance.
Here’s a summary:
- Assess your risk and choose the insurance company you want to work with.
- Gather the necessary business information, including specific details about your commercial property, including square footage.
- Comparison shop. You may be able to save time by using an insurance broker or obtaining multiple quotes you can compare.
- Purchase your insurance and enjoy the peace of mind that comes with knowing you’re covered.
Property Insurance VS. Business Owners Policy (BOP)
The two most important types of business insurance are commercial property and general liability coverage. Many insurance companies bundle these policies together and offer what’s called a business owners policy, or BOP, at a discounted price.
What Is A Business Owners Policy?
A business owners policy (BOP) is a bundled policy that often includes both commercial property and general liability insurance. Some BOPs bundle slightly different policies. You add extra insurance coverage that exceeds the basic coverage of a commercial property policy. And if you have employees, a BOP can also negotiate worker’s compensation insurance into the bundle.
What Does A Business Owners Policy Cover?
BOPs most commonly combine general liability insurance and commercial property insurance into one policy bundle.
- General Liability Insurance: protects your business from the cost of a lawsuit due to an accident or injury to someone’s person or property
- Commercial Property Insurance: protects your assets in the event of damage to your property.
Some BOPs also include business interruption insurance or additional coverage against theft through crime insurance. Your BOP can be tailored to fit your business needs.
Additional Types Of Small Business Property Insurance
|Type of Insurance||What It Covers||Who It Is For|
Protects your business from the threat of a lawsuit
Protects your building and things inside your buildings from damage and accidents
Businesses with a physical property site and products located in those physical locations
Provides resources if your business is forced to stop or relocate
Businesses located in riskier areas and businesses who might work with vendors in risky areas
Commercial Auto Insurance
Provides protection from accidents on your commercial vehicles
Businesses that rely on automobiles to do business
Provides protection to you and your employees should they become injured on the job
Professional Liability (E&O)
Protects your business during a lawsuit if your business commits errors or malpractices
Any business that provides a service
Product Liability Insurance
Protects a business from a lawsuit related specifically to the product it sells
Any business that manufactures, sells, or distributes a product
Home-Based Business Insurance
Protects any business-related items inside your home not covered by home owner's insurance
Any business owners running out of their own homes
Business Owners Policy
Includes both general liability and commercial property insurance
Provides a bigger ceiling for the legal costs of a lawsuit that extends your liability coverage
When you start shopping for commercial property coverage, you’ll want to know what you can add to your policy to make sure it is the best fit for your business. Most commercial property policies don’t cover earthquake damage or flooding. Are you in an area where the fault lines aren’t predictable? You’ll want extra coverage. Is your business’s location prone to flooding? You’ll want to add flood insurance.
It’s important to ask about additional policies to cover the following possible situations if they’re risks for your area/business type:
- Water damage due to flooding/tsunamis
- Damage from earthquakes
- Mold damage
- Acts of war
- Debris removal
- Employee theft
- Sewage backups
- Loss of business income from closure
Which Type Of Property Insurance Is Right For You?
Whether you are buying a commercial property policy separately or as part of a business owner’s policy, knowing which types of insurance are available will help you make the most informed decision for your business. Here are some policies you can add to your general liability policy.
- Direct Damage Property Insurance: This is your standard commercial property insurance. The policy covers any direct damage to your business location and damage to business property.
- Business Interruption Insurance/Business Income Insurance: After a disaster, the business may need to close its doors for a bit. This insurance covers the lost income due to a closure and helps provide protection for expenses related to the closure (temporary locations, moving supplies, etc.).
- Extra Expense Insurance: In the event of a disaster or interruption to the business, this policy helps provide the funds to move to a new location or minimize the financial effects of a shutdown. It’s similar to business interruption service but targeted specifically toward the extra expenses of moving a business to a new location.
- Leasehold Interest Insurance: If a business loses its lease, this insurance covers the financial loss of losing the lease. It can also help pay back a business owner for the betterment of the space that they are leaving.
- Fine Arts Coverage: If you decorate your space with tapestries, rugs, and paintings, you might need fine arts coverage if you’d want to replace it after a disaster. Because fine art needs a valuation, someone who purchases this floater coverage would want to itemize their art. This is specifically designed for people who use fine art as decoration and have no intention of selling it.
- Contractors’ Equipment Coverage: This additional coverage specifically covers and replaces equipment and tools that are either damaged or go missing on a job site. For contractors and construction businesses that might have expensive tools in a variety of locations, this floater will specifically insure machinery and tools.
- Cyber Liability Coverage: If you’re the victim of hacking or a data breach, and your customer data is leaked (including social security or credit card numbers), it can cost your business a lot of money to comply with federal guidelines. This coverage helps pay legal fees and protects you from lawsuits that arise because of the data breach. If your business is online, or if you collect information online, this is an important addition to your plan.
- Electronic Data Processing Coverage: This insurance protects the equipment and the data that you collect. This is a policy that bridges a gap in your commercial policy between what electronic equipment is insured after an accident or disaster. With this add-on, your computer’s hardware, software, and data information are all insured.
- Employee Theft Insurance: If a dishonest employee steals equipment, money, or securities, the losses are covered under this additional policy added to your commercial property plan. This plan will even cover the losses if you don’t know which employee committed the crime, and it’s part of the crime add-ons to a commercial property policy.
- Inland Marine Insurance: A commercial property policy will only cover items at a specific business location. So what if your equipment and business materials travel from one place to another? This type of insurance covers things in transit or an instrument of transit, or any equipment that’s moveable.
- Debris Removal Insurance: This section of property insurance covers the cost of removing debris after an accident or natural disaster. While property insurance may cover the cost of repair, without this specific add-on to your policy, the cost to remove garbage and debris may fall on your business.