Everything You Need To Know About Small Business Property Insurance
If you are a small business with a physical storefront, a location where you store your goods/supplies, or a strong inventory of vehicles and equipment, buying a commercial property insurance plan should be part of your risk management plan. Commercial property insurance is designed to protect your business from accidents, theft, fires, and some (but not all) Acts of God.
If the worst-case-scenarios for your property come to fruition, a solid commercial property insurance plan creates a way for your business to run and thrive despite the setbacks.
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What Is Property Insurance?
Commercial property insurance is a policy of coverage that protects your business assets in the event of property damage. Accidents, fires, and vandalism are all covered by property insurance, and the policy not only provides compensation for damage to buildings but also damage done to products inside the building. Structures, fixtures, and equipment inside the building are protected under property insurance, but it’s best to check the policy and speak to an insurance expert to make sure your most important assets are included in the policy’s coverage.
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). However, policies are often specific in what they’ll cover and what they won’t cover. Read on to see what is and isn’t covered in most policies.
What Property Insurance Covers
In general, the commercial policies will cover accidents, damage, and theft to your building and assets inside your building. In most cases, commercial property insurance policies will cover the following (although, as with any policy, ask questions about the coverage):
- Damage and destruction from a fire
- Losses and damage from theft and vandalism
- Damage from tornados or a hurricane
- Smoke damage
- Damage from aircraft or other vehicles crashing into your building
- Damage from riots/civil unrest
What Property Insurance Doesn’t Cover
Most commercial property insurance policies will not cover everything and the list of things not covered is extensive. Most policies don’t cover flood, tsunamis earthquakes, and sewer backups among other things.
Sometimes the exact same damage is covered or not covered depending on how the damage occurred. For example, if your toilet backs up and sewage destroys your property, it isn’t covered. But if that same toilet backs-up because of vandalism, that is covered. Since policies vary by carrier, it’s important to learn exactly what is and isn’t covered by your insurance provider.
Who Needs Property Insurance?
Most businesses need a basic type of commercial property insurance if they have a physical location for their business. The coverage will protect business assets in the event of damage to the property. Buildings, machinery, and some electronics are covered under the policy.
If your business is leasing or renting a commercial space, you will need to check with your landlord to see who is expected to carry the burden of insurance. Some landlords will still expect you to pay rent on a damaged building (and it is becoming more common that you will need to supply proof of insurance before signing a lease), so understanding your business insurance policy will help with surprises. Even if commercial property insurance is not required by a landlord, you don’t want to find yourself under-insured.
You should get commercial property insurance if you need to protect the following items:
- A commercial space (that you either rent or own)
- Computer and electronic equipment
- Office furniture and supplies
- Inventory and stock
Property Insurance VS. Business Owners Policy (BOP)
Many business owners find that it is better to bundle their commercial property insurance policy with a general liability policy. This is known as a Business Owners Policy (BOP) and is often the most economical way to protect your business from the biggest claims for and against your business.
What Is A Business Owners Policy?
A Business Owners Policy (BOP) is a bundled policy that includes both property and liability insurance. Check with specific insurance providers about what their particular BOP entails. Under a BOP, many business owners can 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?
All Business Owners Policies (BOP) have general liability insurance and commercial property insurance bundled into one policy. General liability coverage protects your business from the cost of a lawsuit due to accident or injury to someone’s person or property. Additionally, a BOP includes commercial property insurance which provides protection to your assets in the event of damage to your property. Most BOPs also include business income insurance or additional coverage against theft through crime insurance. (Each policy is different and most can be tailored to fit your business risks.)
Additional Types Of Property Insurance
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 additional flood insurance.
It’s important to ask about additional policies to cover the following possible situations if they are 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?
|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
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 the types of 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 it also helps provide protection for expenses related to the closure (temporary locations, moving supplies, etc.).
- Extra Expense Insurance: For businesses that cannot afford to close (a 7-day business like a clinic or a security center), in the event of a disaster or interruption to the business, this policy helps provide the finances to move to a new location or minimize the financial effects of a shutdown. It is 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 (especially if they had a nice lease, under market-value), this insurance covers the financial loss of losing the lease. It can also help pay back a business owner for betterments to the space that they are leaving.
- Fine Arts Coverage: If you decorate your space with tapestries and 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. However, this is specifically designed for people who use fine art as decoration and have no intention of selling it. (That would require a larger insurance policy.)
- Contractors Equipment Coverage: This additional coverage specifically covers and replaces equipment and tools that are either damaged or goes 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 are 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 arising because of the data breach. If your business is online or 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 hardware, as well as software and data information, is 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 is 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 is moveable.
- Debris Removal Insurance: This section of property insurance covers the cost of removing debris after an accident or Act of God. 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 you as a business owner.
Buying 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. After that, read our article on the steps needed to buy insurance. There are four quick steps to getting yourself secured with the right policy.
- Assess your risk and choose which insurance you need.
- Gather the necessary business information (in this case, you’ll need specific details about your commercial property including square footage).
- Comparison shop the costs. (You can use comparison sites like Coverwallet, Coverhound, and Insureon, or contact your local insurance provider to see what commercial plans are available.)
- Purchase your insurance!
Commercial property insurance is important to provide needed protection for your building and the assets inside your building. Whether it’s a fire or an unruly mob of people, if your property is damaged, don’t be left to pick up the pieces on your own. Find a policy that will give you peace-of-mind and adequate coverage to the things that matter most.