A Quick Guide to Cost & Coverage of Commercial Property Insurance

A Quick Guide to Cost & Coverage of Commercial Property Insurance

Commercial property insurance protects your business’s valuable assets from covered perils such as fires, explosions, theft, vandalism, inclement weather, and so on. This policy comes in handy if:

  • You own or operate a business
  • Your business has valuable tangible assets
  • Your physical assets bring in revenue
  • Your assets do not bring in revenue but are needed to carry out important work-related activities

What Is Covered by Commercial Property Insurance?

Also known as business property insurance or commercial real estate insurance, this policy covers your building and its content, including

  • your furniture
  • inventory
  • personal property
  • equipment, and tools

Some of the situations where commercial property coverage will come in handy are as follows:

  • Fire causes damage to your computers
  • Lightning strikes your office building
  • Loss of business income due to business interruption from a covered loss

Limitations of Commercial Property Insurance

Commercial property insurance coverage is limited to the assets/property owned by your business. It doesn’t matter whether you directly acquired the asset or if the asset’s ownership was transferred to your business.

Commercial property insurance will not cover:

  • Property damage resulting from employee error
  • Property not meant for business use
  • Personal assets used for business purposes
  • Intentional property damage by employee or business owner
  • Commercial vehicles, that is, the vehicles used by you or your employees to complete work-related errands

Factors Affecting the Cost of Commercial Property Insurance

Several factors affect the cost of your commercial property insurance. These include:

  • Location- Is your area prone to natural disasters or theft/vandalism? The higher the risks, the higher will be your premiums
  • Coverage Limits- A higher coverage limit attracts a higher premium
  • Claim History- The greater the frequency of claims, the higher will be the cost of insuring your business property
  • Safety Systems in Place- Having safety systems such as fire alarms, water sprinklers, and anti-theft systems in your premises will make you eligible for greater discounts on your policy

Calculating the Value of Your Commercial Property

There are two ways in which your insurer may determine the value of your commercial property:

  1. Replacement Cost (RC) – It refers to the amount required to replace, repair, or rebuild a damaged property on the same premises, with the same materials without deducting any depreciation
  2. Actual Cash Value (ACV) – It refers to the cost of replacing the damaged property with a new property of similar quality and style after deducting depreciation

Once your insurer calculates the ACV or RC of your commercial property, they will multiply it with the risk factors to determine insurance costs. Actual cash value insurance policies are less expensive than replacement cost plans, but the latter provides more compensation in the event of damage to your business property.

How Much Coverage Do You Need?

This will depend on the type and value of assets you want to cover. Plans can be customized according to your business requirements. If you have leased out your space to other businesses, check your lease agreement to review your insurance obligations. In certain cases, tenants may be solely responsible for insuring the building, so it is a good idea to confirm the extent of coverage with your insurer.

For more information on commercial property insurance, contact the experts at 01 Insurance. We are here to help you choose the right insurance coverage for your unique needs.