Commercial Property Insurance for Small Businesses – what is it, what’s covered, how do you get it, and what does it cost? We’re going to cover this and more coming right up.
Hi, I’m Gordon Coyle; as an expert business insurance broker, our website is intended to help guide and educate business decision-makers to help make them more informed insurance buyers. If you have a question about commercial property insurance, reach out, and let’s connect!
Table of contents
Property Insurance Elements
Commercial property insurance is a broad topic so let’s break it down to make this a bit more understandable and how it’s structured. Ensuring commercial property insurance properly will help you avoid future issues.
Commercial property is typically broken down into the following elements or types of property insured on a policy:
- Buildings – This covers the physical structures on your business premises and is essential when you own your own building or parts of it.
- Business Personal Property -Includes coverage for items such as contents, inventory, furniture, and fixtures.
- Machinery & Equipment – This is especially important for manufacturers who segment the values of machinery.
- Business Income – this coverage was previously called business interruption insurance and protects a company’s cash flow following a covered loss.
Special Classes of Property
Those are the major headings in most small business property policies. In addition, you may see coverage elements such as commercial property insurance for specific purposes:
- Tenant’s Improvements & Betterments – meant to insure the actual improvements a tenant makes to a rented or leased space.
- Electronic Equipment – in some businesses, if there is a large value of computer servers, they may be segmented from just the contents limit.
- Refrigerated or Frozen property coverage for property subject to spoilage.
Different Cause of Loss Forms
There are two predominate cause of loss forms used in commercial property insurance:
All-Risk
The first cause of loss forms is all risk, and as its name implies, this form provides broad protection for the property against all risks of physical damage, other than those perils which are specifically excluded from the policy form.
Named Perils
The second cause of loss form is the Named Perils form, and this name implies it protects property only from the Perils named in the policy. Perils such as windstorms, hail, fire, aircraft, vehicle damage, etc., are some of the Perils named in this policy.
Special Perils
Finally, there are special perils that are excluded from most commercial property insurance policies unless they are specifically added back to the policy. These perils are commonly, flood and earthquake. In some areas of the country, wind is also considered a “special peril” that needs to be endorsed back into a policy form.
Business Owners Policy or BOP
Typically, commercial property is insured as part of a package or BOP – Business Owners Policy, which also includes general liability and other needed coverages for small businesses. Regardless of how commercial property is insured, there are a few issues that need to be reviewed, including the following commercial property insurance factors:
- The first item is the perils against which the property is insured. In most BOP policies, broad “all-risk” coverage is provided, but in stand-alone property policies, you can choose all-risk vs. named peril coverage. The differences are described above. Broad, all-risk coverage, of course, is the preferred method to use.
- Next, we’ve got Co-Insurance. Co-insurance is the percentage of the full value of the property you agree to insure. Most BOP policies require that property be insured to 100% of its replacement value, and we’ll discuss the replacement value in a minute. On property policies where the co-insurance amount is stated, usually as a percentage – say 80% – that means that you agree to insure your values at least 80% of the property’s replacement value. The good news with co-insurance is that you can elect to insure less than 100% of the value and save a few bucks. Still, the bad news about co-insurance is that if you don’t meet that 80% level in this example, you’ll suffer what is known as a co-insurance penalty, and this is where it can go sideways. The party that decides the replacement value of the property following a loss is your insurer, and they will use the acceptable standard replacement cost calculation of, say, your building. You may think – oh, i can replace this building for $100 a square foot and insure it to that value. Then there’s a claim and your insurer says it will cost twice that to replace it, now you’ve got a problem and you’ll be penalized and become a co-insurer in settling this loss paying a percentage of the claim out of your pocket. The point here is that insuring your property to its full replacement value is really important, especially with commercial property insurance.
- Finally, you’ve got issues such as blanketing coverage across multiple locations if you have them, property insurance enhancements such as ordinance and law protection, deductibles, and more.
The point is that property insurance can be complex. Guessing at what you need or how you need it can lead to problems which is why I don’t think that buying a policy online without the help of a skilled broker is a mistake. And, when you combine coverages into a BOP or Business Owners Policy you’ve got more choices and decisions to make, making the role of a skilled broker even more critical when dealing with commercial property insurance.
How Much Does Commercial Property Insurance Cost?
The Cost of commercial property insurance will vary based on several factors like: the limits of coverage you purchase, the type of property being insured, it’s location relative to fire protection, construction of buildings, the occupancy of the buildings, the industry you’re in, you claim history and so forth.
You can manage the cost of property insurance with preventative measures like good housekeeping, sprinkler systems, regular inspections of the property, etc.
Navigating Commercial Property Insurance
Commercial property insurance is complex, and the larger your requirements the more complicated it becomes. A skilled insurance broker, like The Coyle Group, can help businesses of all sizes procure comprehensive protection at a competitive price.
What you should be looking for in a skilled insurance broker:
Expertise – Look for a broker who has deep expertise in commercial property insurance as well as other lines of coverage and can develop an accurate protection plan for you.
Advocacy – A good insurance broker also acts as your advocate when something goes wrong. Whether that’s a claim, a billing error, or a coverage issue, when working directly with an insurance company or a captive broker, it may be challenging to resolve problems when allegiances are unclear.
Risk Management Insights – A skilled insurance broker can go beyond insurance to offer insight, guidance and expertise in developing risk management strategies that will help reduce the chance of loss and help reduce the cost of your property insurance.
Commercial Property Insurance – Additional Tips
Review your policies regularly and update them as needed. This includes property insurance limits and adding new locations or exposures as they occur.
Understand local nuances – if your community has had flooding issues in the past, then flood insurance may be an appropriate purchase.
Blanket Coverage – Where it’s feasible and available, insure multiple locations on a blanket basis, meaning all the building limits are consolidated into a single master limit and all premises are “blanketed”.
Conclusion
Here’s the bottom line. Your business may be the most valuable asset you own. Protecting it appropriately is essential; using a skilled and experienced broker in commercial property insurance usually doesn’t cost more than doing it yourself.
Looking for help? Want that expert guidance and a choice of the best insurers in America? Then contact us at The Coyle Group, and let’s chat. We can find the right coverage for your business at the right price. Hit that “Get Insured” button now to arrange a no-pressure consultation. Thanks!
Gordon Coyle is The Coyle Group’s CEO and a seasoned business insurance expert with over 40 years of experience and four professional designations. He specializes in helping businesses with 25 to 1,000 employees navigate the complexities of risk and insurance, from cyber insurance to D&O protection and everything in between. Gordon is passionate about providing tailored solutions that protect businesses, their owners, and their futures.
Need guidance on your business insurance? Contact Gordon for help!