Why Commercial Property Insurance is Essential for Your Business

Natural disasters and crimes can impact a business at any given moment, and when disaster strikes, you will realize just how valuable it is to protect your business.

Commercial property insurance safeguards your physical business assets by providing a safety net to ensure your business will be financially viable even in the worst of circumstances.

We’ll review what commercial property insurance is, what it covers, and explain how it works to give you peace of mind all year long.

What Is Commercial Property Insurance and Why Is It Essential?

Commercial property insurance is sometimes called by other names—commercial building insurance, business personal property insurance, or non-residential building insurance. This type of insurance protects commercial property against certain types of risks. The right commercial insurance is essential because over 200 million commercial claims were filed in 2022.

The most common risks are:

• Fire (The fourth most common claim)
• Theft
• Vandalism
• Burglary
• Wind
• Lightning

Commercial property insurance policies may be a named perils or open perils policy. A named perils policy covers only the perils that are specifically stated in the policy. By contrast, an open perils policy covers all perils except those that are specifically excluded in the policy wording. Common exclusions are earthquakes and flooding. Because an open perils policy offers broader coverage, you can expect the premiums to be higher than a named perils policy.

What Does Commercial Property Insurance Cover?

If you consider the literal meaning of commercial property, it encompasses everything the business owns.

The following list describes common types of business property:

• Business buildings whether owned or rented
• Equipment including computers
• Manufacturing or processing equipment
• Tools
• Inventory
• Accounting records and essential company documents
• Furniture
• Personal property
• Outdoor signs
• Fencing
• Storage sheds

Commercial property won’t cover the building that houses your business if you rent or lease it. The owner of the building covers losses to rented and leased buildings. For example, if hail damages a roof and puts a hole in it causing your business property to be damaged, the landlord’s policy would cover repairs to the roof and your commercial property policy would cover your business property inside the building.

Your lease or rental agreement will outline any exceptions to the rule such as if you are responsible for glass breakage, HVAC units, built-ins, or modifications you make to the building.

You may be able to add an endorsement to your commercial property policy which changes or adds coverage. Earthquakes and glass breakage are common commercial property endorsements.

Commercial property doesn’t cover everything. Certain other types of losses are covered by other types of commercial insurance.

For example:

• Auto accidents involving an employee and a company car are covered by commercial auto insurance.
• Bodily injury or damage to the property of others are covered by commercial liability insurance.
• Coverage for flooding requires a separate flood policy through the NFIP or a private carrier.

For small and mid-sized businesses, commercial property insurance is generally included as part of a business owner's policy (BOP).

How Commercial Property Insurance Works

What happens if you have a commercial property insurance claim? From a claims standpoint, commercial property insurance works much like other types of insurance. If you have a loss, you simply report it to the insurance company. They’ll assign an adjuster who will investigate and ask you about all the pertinent details. The adjuster will review your policy and issue you a check for all covered losses minus any deductibles.

Commercial property policies will explain how your property will be compensated. There are three options for valuation including:

1. Actual cash value – The value of the cost to replace the item after considering depreciation (age, condition, etc.)
2. Replacement cost value – The value of the cost to replace the item with a similar kind and quality.
3. Fair market value – The cost of the item if it were being sold in today’s market.

The most common types of valuation are actual cash value and replacement cost value.

What types of situations could happen that could cause a commercial property loss?

• A fire breaks out that damages your building and everything in it.
• A burglar breaks in and steals your inventory.
• Damaging winds from a hurricane damage your building and/or business property.
• A leaky pipe destroys valuable papers.
• A severe storm damages your outdoor signs, fencing, and outbuildings.

How Are the Premiums for Commercial Property Insurance Policies Determined?

Insurance companies take many different things into consideration when assigning premiums. The primary consideration is the value of the building as it determines the replacement value and level of coverage you need.

Insurers will also consider the following factors:

• Location of the building
• Type of construction of the building
• Occupancy
• Type of industry
• Proximity to the nearest fire station
• Fire protection features such as fire alarms and sprinkler systems
• Type of security system

Rates tend to be higher in areas of significant crime risks and those where there is a significant risk of weather-related catastrophes such as wildfires or hurricanes.

On a positive note, business owners can usually deduct the cost of commercial property insurance premiums on their tax returns as expenses.

A Commercial Insurance Agent Helps Protect Your Business

Your main focus is on running your business, so you may not know the ins and outs of commercial property insurance or other types of essential commercial insurance policies to protect your business. A commercial insurance agent has the knowledge and expertise needed to help you evaluate your risks and recommend the best coverages for your situation.

Our agents at the Leap Carpenter Kemps Agency are happy to review your insurance needs and get you set up with the right policies. Contact us today at 209-384-0727 today or visit the Leap Carpenter Kemps Insurance Agency website.