What Is Commercial Property Insurance?

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Insuring your property is an important way to protect your business.
Insuring your property is an important way to protect your business. (Image: Office image by ultraman from <a href='http://www.fotolia.com'>Fotolia.com</a>)

Commercial property insurance is a way for business owners to protect themselves from unforeseen circumstances, such as natural disasters, fires, criminal theft and other calamities that may damage important commercial properties. It is a way to protect a business' physical goods like buildings, signs, equipment and other potentially valuable goods as well as employees' personal property. Other options include business interruption coverage and machinery coverage, though specific coverage will vary based on policy and the needs of the business.

Types of Policies

Insurance regulations vary by state and offerings vary by company, but broadly speaking, there are three types of commercial property insurance policies. Basic form policies cover ordinary things like damage from fire, lightning and wind. Broad form policies cover basic form things, but expand their coverage to include things like water damage, sprinkler malfunctions, ice and snow. Special form policies cover everything except things the policy specifically excludes, which may be events like terrorism, war, insect and vermin infestation and ordinary wear and tear.

Types of Coverage

The two most common types of commercial insurance are replacement cost coverage and actual value coverage. Replacement cost coverage pays to replace damaged property with new property of roughly similar quality. Actual value coverage pays for the replacement cost of the property, minus depreciation costs for things like wear and tear and aging. Some policies use a combination of both when deciding how to reimburse you.

Specific Policies

While it is possible to buy a separate policy for every type of coverage, most businesses opt for a Commercial multi-peril policy providing a package of coverage across a variety of threats. Some companies also offer plans targeted toward small businesses that cover property and liability, but leave off some of the coverages targeted at big businesses like fire sprinkler malfunctions.

Regional Considerations

One important area to research is particular policies for your region of the country, especially if it's prone to regularly occurring natural disasters or calamities. Businesses in California may need a separate earthquake policy to cover earthquake damage, while businesses in hurricane or flooding-prone portions of the country may need specific policies to cover those damages.

More Coverages to Consider

Some policies may only cover a limited amount of damage or specifically exclude certain things. If you live in areas with lots of crime, you may want to consider additional coverage for crime and vandalism. Some policies may limit glass coverage, so owners of glass-fronted buildings may want to include that in their policies. Owners of seasonal businesses may want to increase their coverage during peak seasons and lower it during the off-season, to keep up with their crowd traffic. Specifics depend on individual policies and offerings and your insurance agent will be able to give you advice specifically tailored for your business needs.

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