As a business owner, you pride yourself on your careful planning and preparedness. With all possible diligence, you make sure to keep your records meticulously updated, your inventory stocked and your employees well compensated and motivated. As part of your thorough and loving stewardship of your enterprise, you also need to protect your property against unforeseen events. Take a look at your local or national news on any given day, and you will see examples of disasters that decimate communities and bring businesses to their knees. Learn all about commercial property insurance in order to do all you can to protect yourself.
In general, this coverage is one of the most common types that you can purchase. It protects your equipment, buildings, inventory, tools, etc. against losses due to a number of catastrophes, both natural and man-made. If you do experience a loss, your insurance will furnish you with the critical financial help you will need in order to remain operational with the minimum of interruption.
There are several types of property insurance policies for small businesses. One type will cover you against a specific peril, such as fire or electronic equipment protection. The particulars of the policies will, of course, vary according to who provides them. Another type of policy combines several types of disaster protection into one bundle or package. Many business owners prefer this kind of coverage, commonly known as a Business Owners Policy or BOP, since it can tend to be more comprehensive and less confusing.
Generally, the BOP pertains to all of the buildings and property you use to run your business. This includes: buildings; machines and equipment; outdoor features; things you use to maintain the building; and any additions that are under construction. You can decide whether to ensure your buildings at their actual cash value or their replacement value, i.e. what it would cost to construct totally new buildings. The BOP also covers your inventory, raw materials, machines and computers. Finally, it covers property that has been entrusted to your care, such as computers that you are repairing.
When you sign your insurance contract, you will know exactly what types of situations it will cover. One kind of BOP names all of the disasters that will be covered, while another specifies only what does not fall under the insurance’s purview. This second type, sometimes called the special form BOP, has a wider range of coverage and is often more expensive. In the standard BOP that names covered causes, the following are included: most explosions, lightning, fire, wind storm or hale, smoke from accidental fire, aircraft or vehicles not owned by the business, civil commotion, sprinkler leakage, sinkhole collapse, building collapse, volcanic action and some types of water or liquid damage.
The basic BOP does not cover all types of property damage that could cripple or destroy your business. If you like, you can pay an additional premium that safeguards you against the effects of employee dishonesty and the breakdown of a steam boiler. Basic wear and tear on equipment is not included, since it is not accidental or unpredictable. Neither nuclear reaction nor damage from war are covered either, since insurers cannot predict the extent or cost of potential damage in advance. Additional uncovered items include power failure that does not cause loss of data or damage to electronics, computer hardware and software failure, robbery and burglary, pollution, changes in temperature or humidity and unexplained inventory shortages. Before you sign any contract, it is crucial that you have a thorough understanding of exactly what is and what is not covered under your policy.
It is important to also understand some natural disasters that are not covered under most commercial property insurance. In general, you must purchase additional policies, some of which are quite costly, if you wish to protect yourself against these disasters. In particular, these situations include:
- Floods. Look no further than the devastation wrought by Hurricane Katrina to understand the toll that a flood can take on your business. After such disasters, at least 25 percent of businesses never open again. Purchasing additional flood insurance can literally save your operation. There is typically a 30-day wait after you purchase the policy before it goes into effect. But once it does, it will cover your building and all of its contents against this type of damage. Those in hurricane-prone areas such as Florida, Alabama, Mississippi, Louisiana and Virginia are excellent candidates for flood coverage, as are those near other rivers that frequently rise above their banks.
- Tornado damage. The months of March through August mark the tornado season. If you operate a business in Kansas, Oklahoma, Missouri, South Dakota, Nebraska, Iowa, Indiana or Ohio, you are in “Tornado Alley” and should definitely purchase coverage if your commercial plan does not already include it. A proper tornado policy should cover the full value of your property, inventory and equipment and other valuable business assets. Find a policy that does not have “anti-concurrent causation” clauses that can give the company wiggle room to deny a claim if some of the damage is caused by an excluded event or peril. Additional business interruption coverage is recommended for seasonal businesses that make most of their revenue during this time of year.
- Earthquake damage. If you own a business in California, it goes without saying that you need earthquake coverage, which is generally not found in your basic BOP. However, earthquakes don’t just happen in the Golden State; other states that have them frequently include Alaska, Hawaii, Nevada, Washington, Idaho, Wyoming, Montana, Utah and Oregon. In most cases, you can obtain earthquake insurance as an endorsement to your business owner’s insurance. Typically, earthquake insurance only covers direct damage to the property caused by the quake itself. If your pipes burst, your property or homeowners coverage would kick in. Similarly, your automobile insurance would cover damage to business vehicles resulting from the quake. Generally, there is a deductible of 10 to 15 percent of the cost of rebuilding the business and purchasing its contents.
You have worked tirelessly to build and grow your business. Don’t let an act of nature destroy all you have done in an instant. Take the time to investigate the various types of commercial property insurance, purchase the coverage that is right for your business and geographical location and breathe easier, secure in the knowledge that you have done all you can to safeguard your company.