As a business owner, you’ve poured everything into building your business. But do you have the right commercial insurance to protect it?
According to the U.S. Chamber of Commerce, small businesses in the United States pay more than $100 billion each year to settle legal disputes. So how can you avoid getting hung up in a “prickle-ly perch” of costly litigation?
One way is to purchase commercial property insurance. Commercial property insurance protects the tangible land where a business operates, as well as the capital equipment and contents of the building owned by your business. Policies will vary on the types of coverage and amounts of damage provided in each of these areas.
Here’s what you need to know:
What does commercial property insurance cover?
Commercial property insurance covers loss exposures which consist of three main components: types of property, causes of loss to property, and financial consequences of property loss.
Property is defined as any item with value. Property insurance covers real property and personal property. Examples of real property include land, buildings and driveways, as well as permanent fixtures to a structure, such as built-in appliances. Personal property is everything else and can include items such as vehicles, furniture and equipment.
Personal property not only includes contents of a building, but also property in transit (such as shipped merchandise), property in the possession of others (such as items being stored or repaired) and “floating” property that is moved around, such as contractor’s tools or a photographer’s cameras.
Causes of loss to property, such as theft or fire, leave it in an altered or unusable state. According to The American Institute for Chartered Property Casualty Underwriters, fire poses the biggest threat, though windstorms, flood, earthquake and other catastrophic exposures also pose a threat.
Financial consequences of property losses include a decrease in property value, loss of income, or extra expenses.
Types of commercial property insurance
Business owners can choose from a wide selection of property insurance policy options that meet their unique business needs. Some policies cover a single peril such as a fire insurance policy; others cover a single cause of loss, such as a crime policy.
Small businesses commonly purchase a “package” of several different coverages because it is more cost-effective and convenient to consolidate many types of loss into a single policy.
Who should buy commercial property insurance?
Commercial property insurance is necessary for many different types of businesses. Most commonly, it is carried by retailers, manufacturers, service organizations and nonprofits.
How to obtain coverage
Similar to homeowner’s property insurance, a business applies for coverage by submitting a specific application. The underwriter will then evaluate the application and if coverage is granted, the policyholder will pay a premium for coverage under that policy.
How to activate coverage
If an incident occurs, such as a piece of property is damaged or equipment is stolen, a claim is filed. Subsequently, a claims adjuster will assess the claim to determine whether or not it qualifies under the specific type of coverage provided under that particular policy.
If it does, the insured will receive compensation for the damage incurred.
Other business insurance you need
Commercial property insurance is often the first type of policy business owners purchase. It can be purchased as part of a business owner’s policy (BOP) to save money and time.
However, not every business qualifies for a BOP. If you purchase a standalone commercial property insurance policy, you should consider the following types of insurance not provided under your property policy:
Liability insurance — protects you from financial loss resulting from mistakes your employees make that impact customers, or slips and falls on your property.
Business interruption — covers the loss in revenue due to the closure of operations and expenses from operating out of a temporary location. Note that this can be added as a rider to an existing commercial property policy.
Flood insurance — protects you from damage from floods, which is essential in high-risk flood zones.
Workers compensation — mandatory in most states, covers the losses from workers injured on the job.