Everything You Need To Know About Small Business Property Insurance
What is commercial property insurance and do you need it? Read our guide to find out!
Commercial property insurance should be part of your risk management strategy if you’re a small business with a physical storefront, a location where you store your goods/supplies, or a strong inventory of vehicles and equipment. A commercial property insurance plan 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.
Table of Contents
- What Is Commercial Property Insurance?
- How Does Commercial Property Insurance Work?
- What Does Commercial Property Insurance Cover?
- Who Needs Commercial Property 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?
In the simplest of terms, 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. Plus, the policy provides compensation for damage to buildings as well as 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).
How Does Commercial Property Insurance Work?
Having protection for your commercial property is a great and necessary step toward your business’s long-term financial health, but the devil is in the details. Policies are often specific in what they’ll cover and what they won’t cover.
In order to have a valid claim through commercial property insurance, the occurrence that triggered the claim mustn’t be excluded in the fine print of your contract. So, for example, while the vast majority of commercial property insurance policies will have protections against fires…the insurance carrier ultimately decides whether it will cover a natural fire, an electrical fire, a fire caused by the mishandling of volatile chemicals, and so on. Your insurance agent or broker can help walk you through the clauses of your policy if you’re confused about what possible scenarios wouldn’t be covered with your current (or would-be) insurance.
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. 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 — in fact, the list of things not covered is extensive.
Most policies don’t cover floods, tsunamis, earthquakes, and sewer backups among other things. It’s also important to note that commercial property insurance will only cover your property — if a customer or client’s property gets damaged either while they’re on the premises of your business or 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 the majority of those kinds of incidents.
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 Commercial 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. It’s likely that you’re going to need to supply proof of insurance before signing a lease, and some landlords will still expect you to pay rent on a damaged building. (The good news is that business interruption insurance will cover that!) Plus, you’re going to need commercial property insurance either way if you want to protect your business’s physical assets in the event your landlord’s building is damaged.
Understanding your business insurance policy will help mitigate any surprises. Even if commercial property insurance is not required by a landlord, you don’t want to find yourself underinsured.
You should get commercial property insurance if you need to protect the following items:
- A commercial space (that you either rent or own)
- Computers and electronic equipment
- Office furniture and supplies
- Inventory and stock
How Much Does Commercial Property Insurance Cost?
Because of how fundamental commercial property insurance is for business owners, it won’t cost you an arm and a leg to get the coverage you need.
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 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. 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 of business insurance. (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 for the things that matter most.
Property Insurance VS. Business Owners Policy (BOP)
Many business owners find that it’s better to bundle their commercial property insurance policy with a general liability policy. This is known as a business owners policy (BOP), and it’s 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 an 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 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 additional 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 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 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’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. 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 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 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.