Commercial Property Insurance

In spite of your best efforts, harm can befall your business and your property. Commercial property insurance is designed to protect you against the financial loss that these disasters usually leave behind.

What Businesses Benefit From Insuring Commercial Property?

In general, any business that has a building or inventory is an excellent candidate for this coverage. That includes manufacturers, retailers, service-oriented companies and even not-for-profits.

What Does It Cover?

In many ways, property insurance can be considered an investment in the future of your company. It will safeguard your enterprise against devastating financial loss in the event of catastrophes that you could not possibly have predicted. Below is a list of some of the things addressed by this coverage:

• Coverage in case of a devastating fire that destroys your facility and all of the goods contained within.
• Coverage in the event of a broken water pipe that floods your plant and ruins documents and records.
• Coverage against storm damage that destroys your company’s signage.

In general, this insurance covers your building and landscaping, office equipment and furniture, company signs and inventory. In most cases, the cost of the premiums can be deducted as business expenses. Depending on the type of coverage you choose, you might also be covered in the event of any loss of income or additional expenses that are incurred as a direct result of the property damage. Also depending on your policy, you might be eligible to receive business interruption insurance. If a covered event such as a fire occurred, the company would cover up to a year’s worth of lost income if your company’s operations are forced to be put on hold.

The Cost Of Insurance For Commercial Properties

There is no single amount that all businesses pay for this type of coverage. In fact, what you will pay depends on a variety of factors, including the location and type of business you own, the construction of your building, and its proximity to other risks such as crime, fire and flood damage. In general, your agent will calculate your premium by multiplying your building’s property value by another number determined by the level of risk the insurer believes you to have.

Ask the following questions to determine your level of risk:

• What materials were used to construct your building? Rates will be lower if it’s made of brick or contains fire-resistant doors, walls, and floors. Also, newer buildings whose infrastructure has been recently upgraded will fetch lower rates.
• How are you using your building? For example, a restaurant where cooking takes place will incur a higher premium than will a knitting shop where there are presumably fewer high-risk activities happening on the property. Also, you will pay more if you are renting to a high-risk tenant.
• How much protection does your property have? Your costs will be lower if you are located near a fire hydrant or station. It is also to your advantage if you have installed a sprinkler system.

The insurance industry allows smaller companies to purchase a Business Owner’s Policy (BOP) which bundles your property and liability insurance into one less costly package. Also, you can choose to purchase a policy that only covers the replacement value of your items, as opposed to the cash value. While doing so will reduce what you receive in the event of a catastrophe, your on-going premium costs will be significantly lower.

Typical Commercial Property Insurance Rates

As of 2015, the average cost of commercial property over the past five years for all clients surveyed was $742 per year. This amount only accounts for the property insurance portion of the business insurance policy and represents policies that had business personal property for contents and building coverage. This average would be higher if the policy were covering the entire building as opposed to just its contents.

Customize Your Coverage

Because insurance companies recognize that no two businesses are identical, they make it possible for you to customize your coverage to meet your exact specifications. For instance, you can purchase open perils coverage that covers all incidents unless they are explicitly excluded. For policies such as these, events such as wind damage, fire, vandalism and smoke are covered.

Small businesses are often good candidates for open perils policies. On the other hand, named perils coverage only pays for events specifically listed in the policy. If your building is on a flood plain or in an earthquake-prone zone, you might want to look into purchasing this option.

State Regulations And Minimums

Obtaining excellent commercial property insurance could mean the difference between surviving a devastating loss and going bankrupt. Therefore, it is in your best interest to do some research before signing on the dotted line. Consult a local insurance agent or conduct online research to learn what specific requirements your state may have.

Since these can change and also vary from one state to another, don’t rely on information from five years ago or assume that a friend’s coverage in a different state will be similar to yours. In this case, taking preemptive action can pay for itself many times over should disaster strike.

Underwriting Guidelines

In order to make a decision about providing coverage, insurance companies provide a set of rules and requirements to their agents and underwriters to guide them through the process. By using these protocols, your agent and underwriter will be able to judge whether your property will be insured or rejected. These guidelines also help to determine what modifications need to be made to a policy to provide the best coverage.

What exactly do underwriters look at when making these decisions? Here are the four main elements:

1. Construction

   Underwriters consider construction materials, square footage and the age of the structure. Factors such as the combustibility and potential damage of the construction materials in the walls, roof and floor are considered, and a rating between one and six is assigned.

   In terms of square footage, underwriters look at the building’s maximum possible loss in relation to its probable maximum loss. The larger the structure, the less likely it is that the whole building will be destroyed in the event of a fire or other disaster.

   The older the structure, the more concerns it brings to underwriters. Issues such as wiring, HVAC, roofing and plumbing are given special attention. It is not surprising that aging structures are more likely to incur damage not from outside forces but from a failure of one of these systems. As a result, underwriters and agents will want to know details about how these internal mechanisms have been maintained, when and by whom.

   In addition, building codes and other regulations change over time. Older buildings that were constructed years ago were not required to comply with some of the codes that have been put into place in recent years. Doing all you can to bring your property up to current code can help to reduce the cost of property coverage.

2. Occupancy

   This is comprised of two factors: what the insured company does and how they protect themselves in the event of hazard. Each class of business (retail, service, manufacturing, etc.) carries its own level of risk of property loss. The higher the risk, the higher the property occupancy rate factor.

   For example, a web consulting business would carry a much lower risk than would a landscaping contractor. The underwriter also considers the ways in which the property owner protects themselves against potential damage. The more comprehensive the measures, the better the chance that the premium will be lowered.

3. Protection

   This category pertains to the ways that the property owner is reducing their level of risk for damage. Mechanisms such as alarm systems, sprinklers, fire walls and doors and fire extinguishers are the main items that underwriters evaluate. In order to make your commercial coverage costs as reasonable as possible, it is to your advantage to equip your building with a full range of protection systems.

4. Exposure

   This pertains to whether the property is exposed to external hazards including floods, wildfires, earthquakes, damaging winds and the property’s proximity to a high-hazard operation.

Understanding these basic underwriting guidelines can help you to expedite the commercial property insurance process. In addition, knowing them can be important when it comes time to consider upgrading your major systems. Remember that the more you do to lower your risk of loss, the better are your chances of getting affordable, comprehensive property insurance.

What To Look For When Comparing Property Insurance Quotes

One of the most important things you can do to maximize your success in finding the right commercial property insurance is to know your terminology. The language of insurance can seem daunting at first, but after taking time to read a good glossary, you will see that the verbiage is not as complicated as it may have appeared.

Be able to explain concepts such as premiums, deductibles, loss and risk. Be on the lookout for unexpected costs that unscrupulous insurers try to slip into their policies. For instance, it is necessary to understand exactly what deductible amounts you will be responsible for paying before your coverage kicks in.

If you fail to ascertain this information prior to obtaining your coverage, you may be stuck with a policy that requires you to pay very high costs out of your own pocket before you get any relief from the insurer. Finally, look into getting an insurance bundle that combines several policies into one. You can often save a good deal of money if you get one policy to protect against fire, flood, tornados and any other contingencies that you specify.

Tips To Keep Your Costs Low And Reduce Risk

Purchasing commercial property insurance is a must these days, but it doesn’t need to break the bank. There are several things you can do to minimize your costs and risk.

• Conduct regular liability audits and follow the recommendations you receive.
• Regularly train your staff on safety procedures.
• Correctly categorize your employees. If you mis-label them into higher-risk occupation titles, your premium amounts may be unnecessarily high.
• Pay for your premium up front. If you are currently on a payment plan, you are probably paying additional costs for the privilege. If you can afford to do so, take care of this expense all at once and reap the financial rewards.
• Raise your deductible. The higher the deductible, the lower your premiums will be. However, you need to be realistic about the deductible amount you can afford in the event of a claimable event.
• Get the right amount of coverage. Not buying enough can leave you in the hole financially if something bad happens. By the same token, amplifying your coverage beyond what you really need will cost you dollars you can better spend elsewhere. Therefore, take time to review your business practices and expenses as well as your claims history to arrive at a coverage amount that is just right.
• Don’t assume that you are getting the lowest rates just because you have used the same insurance company for years. Ask if they can give you any discounts. Also, certain industries have trade associations that can help you find low-cost yet effective insurance policies. Industry-specific publications and carriers can also enable you to get coverage that addresses your unique business needs.
• Bundle your coverage. Often, it can be more costly to buy individual policies for events such as fire, theft and floods than it is to purchase them in a single business owners policy (BOP). If you don’t already have one, speak to your agent about the advantages of combining coverage types.
• Regularly review your coverage to be sure that it protects you against the current risks you may be incurring. Take into account changes in your business structure, number of employees and even your neighborhood’s crime rate. Shop around until you find the most thorough, economical option.

Frequently Asked Questions About Commercial Property Coverage

How long does it take for a new policy to become active?

As with so many other aspects of insurance coverage, this depends on what is stated in your policy and on what your agent tells you. In general though, coverage begins after the policy has been delivered to you and the first premium payment has been made.

Is tangible personal property covered?

This refers to anything other than real estate that is used in your business property. Examples include signs, desks, computers, printers, records and decorative art. In most cases, this property will be included in your business owners policy (BOP). If the value of an item exceeds your BOP’s limits, you can schedule the item for its replacement cost.

Is business personal property insurance included?

As stated above, most BOPs contain this type of coverage. Although it protects you against the costs of loss business-related property, there may be other costs incurred after a disaster. For instance, you or one of your clients may have valuable personal possessions that were lost or damaged. In most cases, it is your homeowners policy that would address these concerns. Note, however, that it must contain an off-premise item protection clause.

Should I get commercial property insurance if I rent?

The answer is yes, but you may be able to save on costs because you don’t own the building. Look for a policy that covers the contents of the building but not the property itself.

Choosing property insurance is one of the most important decisions you will make for your business. It requires patience, time, an understanding of terminology and a willingness to ask questions and shop around for the best results. Although the process can seem daunting, it will ultimately give you the security and financial safety net you need in the event of an unforeseen disaster.