What Is Business Property Insurance?

Fran Majidi
November 4, 2020

Business property insurance, also known as commercial property insurance, helps to protect your business property whether you own or rent the business property. Business property insurance protects a number of items in your business office, including personal property items, tools and equipment, inventory stored at your office or warehouse, furniture including couches, desks, chairs and tables, the computers you use to run your business, accounts receivable and other important documents and outdoor landscaping such as fences. What does business property insurance cover? With business property insurance you’ll be protected from everything from property damage to bodily injury claims. Let’s say there is fire damage to your business and most of the furniture gets destroyed. Business property insurance can help pay for the costs of replacing the furniture. Let’s say a customer trips and falls at your office, those bodily injuries would be covered under business property insurance. If someone breaks into your office and steals your office equipment. This theft would be covered under business property insurance. Business property insurance would also cover lost income if you are unable to run the business because of a covered loss such as a fire.

How Does Business Property Insurance Compare to Homeowners Insurance?

Got a home-based business? You may be wondering if you need business property insurance. Business property insurance offers more property coverage for your business than a standard homeowners property would. In fact, a homeowners policy may include little or no coverage for business property. If you have a home-based business your homeowners policy does not protect your business equipment and files. So you may want to purchase business property insurance to protect your work items in your home-based office.

Essential Insurance Coverage with General Liability Protection

Two essential insurance coverages for a new business to get are business property insurance and general liability insurance. General liability is a form of insurance that protects you if you cause any damage whether it be bodily damage or damage to the client’s or another’s property. Most clients and employers require general liability insurance before doing business. So it is an important coverage to have. Coupled with a business property insurance, the two coverages offer a good level of protection for your business and the business property.

Types of Businesses that Have Chosen Business Property Insurance

Wondering if business property insurance is right for you? These businesses have already made that choice. They include advertising, graphic design and media services, barbershops, electricians, financial institutions, pet grooming, plumbers and retail stores.

Wherever You Work Business Property Insurance Protects

Business property insurance protects you whether you own your building, lease your building or office space or work from home. Business property insurance protects your building and its contents as well as exterior fixtures such as a fence or an outdoor sign. Business property insurance protects your company’s building from fires, explosions, burst pipes, storms, lightning, wind, hail, theft and acts of vandalism.

Business Property Insurance May Be Required

Landlords often require proof of business property coverage from business tenants. And lenders typically mandate business property insurance for business borrowers as well. And landlords carry business property insurance for their buildings. So whether you rent or own a business office space you may need business property insurance.

Exclusions to Business Property Insurance

Earthquakes and floods are not covered by business property insurance, unless you get those perils added to your policy. You also can get a flood insurance policy through the federal government’s National Flood Insurance Program (NFIP), which is managed by the Federal Emergency Management Agency. NFIP was established in the U.S. Congress in 1968 to protect property owners from financial losses due to flood damage. You also can buy a separate earthquake insurance policy if you live in a state where earthquakes are prevalent.

Business Property Insurance is a Key Part of a Businessowners Policy

Business property insurance is a core insurance in a businessowners policy (BOP). A BOP combines liability coverage and property coverage into one package. BOP is popular among small and medium sized businesses such as restaurants, wholesalers, retails stores and contractors.

The business property coverage in a BOP covers commercial buildings and property owned by and used for business, which is known as business personal property. The liability coverages in a BOP are the same as the coverages in a general liability policy and claims such as customer injury, advertising injury and product-related claims are all covered. The combination of property and liability coverages in a BOP works wells for small and medium sized businesses. But there are exclusions. For example, earthquake damage is not covered. Need earthquake coverage for your business? You’ll have to see about getting a separate earthquake insurance policy or add a policy endorsement for earthquakes to your current policy to extend coverage.

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How Much Does Business Property Insurance Cost?

How much you’ll pay for business property insurance depends on the value of your business assets, including your building. But there are other factors as well. These include your business location. Is the area prone to storms, floods, earthquakes and other natural disasters?

How is the construction of your building? Is the building made of fireproof materials? How new is the electrical wiring, plumbing and heating and air conditioning?

What is your occupation? Running a restaurant or repair shop may carry a greater risk than being an accountant. What kind of fire and theft protection does your business have? How far from your business is the nearest fire hydrant or fire station? Does your business have a fire alarm and sprinkler system? What about a security system?

Recouping Your Losses

Business property insurance policies pay for losses based on the replacement cost of the item or its actual cash value. The replacement cost is the amount necessary to repair, replace or rebuild property on the same premises. This is done with comparable materials and quality and doesn’t deduct any amount for depreciation.

Actual cash value is the cost to replace the property with new property of similar style and quality, minus any depreciation. Business property premiums using actual cash value are lower because of the deductions made for depreciation. So you may want to choose this more affordable replacement loss for your policy.

Types of Business Property Policies

The purpose of a business property insurance is to provide financial assistance in the event of a covered loss so the business can continue with as little disruption as possible.

Business property insurance policies vary from insurance company to insurance company. Some policies cover only a single peril or cause of loss. These types of policies include a fire policy, a crime policy, or an electronic equipment policy.

There are other business property policies that include several different coverages in a single package. Most business owners buy a package providing protection against many different types of losses.

Examples of Losses Covered By Business Property Insurance

Sometimes, an example is needed. Here are some examples of losses covered by business property insurance. Let’s say your billing records get destroyed in a fire. Accounts receivable protection is covered in your business property insurance policy so you’ve got coverage for the increased cost of collecting payments and the cost of reestablishing the account records. Let’s say a pipe bursts and damages a file cabinet and all its contents. Valuable paper and records coverage comes with your business property insurance policy so you would be paid for the loss of the filing cabinet. Let’s say a dishonest employee steals money from your business. This coverage is optional with your business property insurance so if you didn’t sign up for it you may be out the money stolen by the thief. If you have this optional coverage, you are covered for this loss. A transformer blows and you lose power at your restaurant. Perishable items are destroyed. This loss of perishable items is covered under business property insurance. Your computer system is hacked and someone transferred money out of your bank account. Computer fraud is covered under your business property insurance.

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