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How Commercial Property Insurance Works

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Every business needs commercial property insurance, regardless of its size or exposures, including leasing or owning office space or equipment, manufacturing products, managing inventory, or maintaining others’ property. 

Here, I’ll outline what business property insurance is, how it works under a couple of different coverage scenarios, and what you might expect to pay. Let’s start with the basics. 

Commercial Property Insurance Basics 

As its name implies, commercial property insurance is designed to protect your business’s physical assets. These include: 

  • Buildings – Structures where business is conducted. It also encompasses exterior signage, fencing, landscaping. 
  • Business personal property – Computers, office furniture, equipment, inventory, essential documents, others’ property, misc. outdoor items. 
  • Business income is also commonly referred to as ‘business interruption coverage,’ which helps replace lost revenue if your business is forced to temporarily close due to a covered peril.
  • Inland marine – Insures products during land transit (e.g., truck, train). 
  • Cargo – Similar to a business inland marine, but covers a ship’s cargo when transported via bodies of water. 

Like any other form of commercial insurance, the exact perils covered by your business property insurance depends on your carrier, as well as the specific policy you choose. 

Related: Commercial Business Insurance 101 

With this said, basic commercial policies cover business property against perils like fire, explosion, theft, vandalism, burst pipes, storms, and damage caused by vehicles or airplanes. Depending on your business’s unique needs, you can add endorsements for protection against earthquake, broken glass, cyber liability, hired and non-owned autos, and directors and officers (D&O) coverage. 

How Does Commercial Property Insurance Work? 

Carrying these details over, imagine you operate a longstanding business that manufactures widgets in a large warehouse owned by your company. Although you’ve been in business for a while, you like to keep everything under one roof, including manufacturing, assembly, packaging, and shipping. 

In the middle of one night, an electrical spark from faulty wiring causes half of your building to burn to the ground. You lose half of your inventory and equipment, and the repairs to your warehouse will take at least three months—during which time you can’t produce a thing. 

In this admittedly simplistic scenario, your business property insurance could help pay to replace your lost inventory, repair or replace your equipment, fix your shop, and even pay for your lost income, which could mean the difference between staying open and shutting your doors for good. 

How Can You Decide How Much Business Property Insurance You Need? 

The first step when determining your ideal coverage amount is to take inventory of your business’s assets. Basically, anything inside the building which houses your business needs to be accounted for, even if you lease or rent the space. You’ll also want to consider computers, phone systems, manufacturing or processing equipment, important company documents, and even satellite dishes. 

IHS Pro Tip: At a loss where to begin? The FreshBooks website offers several great tips to help you calculate your business’s assets.  

The Important Distinction Between Actual Cash Value (ACV) & Replacement Cost (RC) 

Once you gain a better idea of how much business property you need to insure, another big step is determining how you want to insure it. Basically, you have two options: 

  • Actual Cash Value – An item’s cost new, less depreciation. 
  • Replacement Cost – The current cost to replace an item with another of similar kind and quality. 

While ACV is less expensive, it’s probably not a wise coverage option, unless your business has the funds to make up the difference between what the carrier pays and what the item currently costs to replace. 

Related: What’s the Difference Between Replacement Cost and Actual Cash Value? 

On the other hand, you’ll pay higher premiums if you insure your business’s property on a replacement cost basis. However, other than your deductible, you might incur no additional out-of-pocket costs to replace the property following a covered claim. 

How Much Does Commercial Property Insurance Cost? 

How much you pay for commercial property insurance depends on unique factors like the value of your business’s assets, its geographic location and potential exposure natural disasters, your industry, how your building was constructed, and your property’s security and safety features (including distance to fire stations). 

As such, commercial property insurance premiums can range anywhere from less than $1,000 per year for smaller businesses with little-to-no assets to well over $5,000 per year for larger companies with extensive assets and unique exposures. This is why it’s crucial to work with a reputable agent when purchasing commercial property insurance, which can help balance your coverage and budgetary needs. 

How Can You Choose the Right Commercial Property Insurance? 

At IHS Insurance Group, we recognize that you’ve worked hard to get your business to where it is today, and you want to make sure you’re protected against the unforeseen. That’s why we’ll sit down with you, assess your needs and acceptable loss thresholds, and search among our reputable carriers to find your best fit. 

Need a FREE Quote or have questions regarding commercial insurance? Please fill out our quick GET A FREE QUOTE form, and an agent will get back to you at your convenience! 

We look forward to speaking with you today!

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