Business property insurance, also known as commercial property insurance, is a necessity for all businesses—not just larger enterprises with physical real estate holdings. Home-based business owners often think their home insurance is enough, but that can be a mistake. Business property insurance is designed for business needs, homeowner’s policies are not.
What is commercial property insurance and what does it do?
A commercial property insurance policy is a safeguard against material damage to the property, or loss of income due to circumstances the business has no control over. Examples of the latter are natural disasters like floods, earthquakes, and fires. Some small business property insurance also covers employee theft.
Business property insurance can be used to replace the essentials that your business needs to operate. This can include equipment, furniture, technology, and inventory. Losing any of these can seriously impact your business’ ability to generate revenue. Assuming you’ll never need insurance for those items can cause significant damage to the business—and it’s simply a bet not worth making.
Why do I need business property insurance?
The insurance needs of businesses vary by industry. In the retail/ecommerce industry, you’ll want to protect your inventory and warehousing. That could be a physical retail location or the corner of your basement that you store the products you plan to sell online. In either case, business property insurance is a necessity. Losing inventory can put you out of business.
Another example is a business who offers finance or accounting services. The physical property would typically be computers and possibly paper files. Losing those in a fire can be an inconvenience to you and your clients, and losing them to theft could undermine your client relationships. Commercial property insurance can help cover the income losses.
What does business personal property insurance cover?
There are riders available for business personal property insurance policies that can cover situations that are unique to your business. Be sure to discuss those with your insurance agent. A basic business property insurance policy should cover the following:
● Fire damage
● Lost income
Some policies also cover storm damage, but that may need to be added as a rider. Certain parts of the country are considered ‘high risk’ areas for tornadoes, earthquakes, and hurricanes. Storm coverage in those areas could be pricey. There are also ‘flood zones,’ where insurance companies may not be able to offer coverage for flood damage.
What doesn’t commercial property insurance cover?
Commercial property insurance normally covers your building, everything inside it, and the area just outside the building. However, there may be some exclusions to this. General wear and tear, if it’s considered normal for your business, is not likely to be covered. Storm damage, as we stated above, may not be covered either if you don’t have a rider for it.
There are some other exclusions small business owners should be aware of. Insurance companies may require receipts and photos for lost or stolen items you make a claim on. There are also safety protocols listed on fire and theft policies that could lead to denied coverage if not followed. Faulty smoke detectors and fire suppression systems are good examples of this.
It’s important to make sure all your security systems and safety equipment are up to code. Otherwise, your insurance policy may not matter.
How much business property coverage do I need?
There are several factors to consider before choosing a business property insurance policy. The first is whether you want to cover replacement value, which is the cost of building with new construction, or actual value, which is the cost of the insured item minus depreciation. The answer could be determined by whether you own or rent your space.
Another factor to consider is risk. How much risk is there that your building will be destroyed by a flood or tornado? How would that financially impact your business? These are questions you should discuss with a qualified insurance agent.
If you’re already a Bluevine customer, you can find business insurance providers right in your account dashboard.
What determines how much commercial property insurance costs?
Risk and location are the two primary variables in determining the cost of your commercial property insurance. For instance, a business located in an area where wildfires happen frequently may need to pay more for fire insurance coverage. The same applies for companies in flood zones or in states where tornadoes and hurricanes are regular occurrences.
The construction of the building is a relevant factor also. Did the builders use fireproof material? Is there new wiring? Alarm system? Sprinklers or fire suppression systems? The insurance company will ask all these questions. What you should ask is how much you’ll need to cover the loss of property or income. Getting the right commercial property insurance is not so much of an expense as it is an investment in peace of mind.