What Is Commercial Property Insurance and How Does It Work?

Commercial property insurance pays to repair or replace your business’s damaged or stolen physical assets, including equipment, inventory and furniture. Coverage only applies for covered losses, such as fire, theft or a pipe bursting and flooding the warehouse. Costs can start at less than $20 per month and will vary based on the type of business, its location and equipment value, among other factors.

Businesses in real estate, retail, construction and other industries can benefit from having their equipment and other physical assets insured. Learn how commercial property insurance works and how much it will cost.

Key Takeaways Commercial property insurance pays to repair or replace physical business assets that suffer a covered loss, such as fire, vandalism and theft. Commercial property coverage insures your commercial building, equipment and tools, office furniture, inventory and some important documents. The cost of commercial property insurance can start as low as $17 per month and can increase based on several factors, such as the value of your equipment, the type of business, your location and your claims history. Without commercial property insurance, you will have to absorb the loss if your business assets are damaged or stolen.

How Does Commercial Property Insurance Work?

Commercial property insurance will cover losses that are usually sudden, accidental and external, such as fire, theft and vandalism. Losses caused by neglect or poor maintenance, such as failing to get your commercial refrigeration unit regularly inspected, will not be covered. Covered losses can vary by policy but will typically include:

• Fire
• Lightning
• Explosion
• Riot or civil commotion
• Damage by aircraft
• Vandalism
• Volcanic eruption
• Windstorm
• Weight of ice, snow or sleet
• Falling objects
• Theft
• Hail

Commercial property insurance policies will typically only cover the actual cash value (ACV) of damaged or stolen physical assets. ACV is the value of an item after deducting for depreciation. Therefore, commercial property insurance will cover your losses but not necessarily pay the full value of what you paid to purchase the item.

If you want commercial property insurance to replace lost equipment at today’s price tag, you will need to pay extra for replacement cost value (RCV) coverage.

Commercial Property Insurance Example

Say you own a restaurant and the kitchen is equipped with industrial stoves, ovens and high-quality pans, pots and other cookware. A kitchen fire (covered peril) burns down half of your kitchen and spreads to your in-house refrigerator.

The damages to your kitchen equipment plus refrigerated inventory total $20,000. Fortunately, kitchen fires are covered and your insurance company approves your claim. You use the $20,000 check to repair what equipment is salvageable and to replace those that are a total loss.

Is Commercial Property Insurance Required?

If you are leasing or financing a physical space, then your lessor or commercial mortgage lender will almost certainly require you to maintain commercial property insurance. Until you fully own the property, then your lender will want to ensure their investment is protected until your last mortgage payment.

Even if you fully own the property or you have a home-based business, commercial property insurance is still worth considering. This policy insures more than the building itself — it also insures equipment, electronics, inventory and other physical business assets. Without insurance, you shoulder the full financial burden if you suffer a loss.

For example, if somebody breaks into your garage where you store your inventory and steals $10,000 worth of product but you don’t have commercial property insurance, that’s a loss you’ll have to absorb.

How Much Does Commercial Property Insurance Cost?

According to Next Insurance, low-risk businesses can pay as little as $17 per month ($204 per year) for commercial property coverage. The type of business will affect your premiums. Businesses that use heavy and specialized machinery will face higher rates — a large-scale manufacturing company will likely pay higher premiums than a small accounting firm, for instance.

Based on data from Next Insurance, median monthly rates can range from $32 to nearly $100 depending on the type of business.

Business	Median Monthly Rate
Accountant	$33
Architect	$35
Business Consultant	$32
Carpenter	$48
Carpet Cleaner	$51
Cosmetologist	$38
Daycare	$44
E-Commerce	$36
Electrician	$50
Engineer	$44
Fitness Instructor	$53
General Contract	$50
Hair Stylist	$41
Handyman	$44
HVAC Contractor	$54
Landscaper	$45
Painter	$43
Personal Trainer	$44
Photographer	$36
Property Manager	$34
Real Estate Agent	$27
Restaurant	$98
Retail Store	$54
Yoga Teacher	$49

Source: Next Insurance

Actual commercial property insurance costs vary based on the several factors listed below, such as location, the type of equipment and the building’s age.

• Location: A retail store located in a high-crime zip code will likely face higher insurance premiums than another in a safer zip code because vandalism and theft are usually covered losses. Similarly, businesses with higher exposure to fires, lightning and windstorms will likely face higher rates.
• Claims history: Insurance companies will charge higher rates for customers that have filed multiple claims recently. Multiple recent claims typically signal a high-risk policyholder.
• Coverage limits: Choosing higher coverage limits offers more protection in a covered loss but will also cost more.
• Work experience: Seasoned business owners may enjoy lower rates than green entrepreneurs new to the new industry.
• Deductible: Increasing your deductible will help lower your monthly premium. However, you will incur a higher out-of-pocket cost when you file an insurance claim.
• Fire protection class: A fire protection class is a score assigned to an area based on how well it can defend against fires. Insurance companies may lower rates for businesses in areas with access to fire departments with well-trained and -equipped firefighters and adequate water supply.
• Size of commercial lot and number of insured structures: Businesses with a bigger commercial space that holds more buildings — office space and a warehouse, for instance — will need to insure more properties than a home-based business.
• Building age: Older buildings generally cost more to insure because they may be built with hard-to-find building materials or have outdated utility systems. Replacing old electrical wiring and pipes so they’re up to code is often expensive and commercial property insurers will charge higher premiums to offset this financial risk.
• Equipment age: Older equipment may use hard-to-find replacement parts that can be expensive, which contributes to higher insurance premiums. Upgrading to modern equipment may have a higher upfront cost but can pay off in lower premiums over time.

What Does Commercial Property Insurance Cover?

Commercial property insurance will cover most types of physical assets, such as the building itself, inventory and machinery.

Coverage	Examples
Building	Roof and walls, office space, warehouses, on-property fences and sheds
Equipment and tools	Industrial stoves and ovens, production machinery, power saws, computers, POS systems
Furniture	Desks and chairs, office decor, lounging areas, patio decor, floor coverings
Inventory	Restaurant ingredients, raw materials, packaging materials, finished products, returned items
Documents	Marketing materials, physical accounting records
Personal property (some limits)	Electronics. Usually subject to a sub-limit.

What Isn’t Covered?

A commercial property insurance policy will contain several coverage exclusions, which will usually include neglect and poor maintenance, earthquakes and normal wear and tear.

• Earthquakes and floods
• Normal wear and tear
• Neglect or poor maintenance
• Governmental action
• Ordinance or law
• Off-premises power failure
• Terrorism, war and military action
• Sudden or accidental breakdown of equipment due to motor burnout or electrical shorts or arcs (covered by equipment breakdown insurance)
• Other people’s bodily injuries or property damages (covered by general liability insurance)
• Professional errors, mistakes, negligence or failure to meet some contractual obligation (covered by errors & omissions insurance)
• Lost revenue if your business has to temporarily close (covered by business interruption insurance)
• Workplace injuries suffered by employees (covered by workers’ compensation insurance)
• Employee labor law violations (covered by employment practice liability insurance)

How Do You Get Commercial Property Insurance for Your Business?

Business owners can buy commercial property coverage by purchasing a business owners policy, which bundles multiple types of coverage, or a standalone policy.

Business Owners Policy (BOP)

BOPs are convenient insurance solutions because they bundle commercial property insurance with other coverages, including:

• General liability
• Business income
• Fraud, theft and forgery

BOPs are often affordable options for business owners to gain multiple types of protections. They can also choose to add other coverages, such as accounts receivable, cyber liability and personal and advertising injury coverage.

Nationwide recommends BOPs from small- and mid-sized enterprises that fit the following criteria:

• Business is not home-based
• Employs fewer than 100 workers
• Less than $5 million in annual sales

Larger businesses with more sophisticated operations may want to consider a standalone commercial property policy.

Standalone Policy

If your business’s physical assets are high-value and you do not qualify for a BOP, then you can purchase a standalone commercial insurance policy. A standalone policy usually allows you to better customize your coverage to your business’s needs and purchase higher limits. However, standalone policies are typically more expensive and will also need to buy other types of coverages as standalone policies, like general liability, if you want them.

Business owners should strongly consider adding business interruption insurance to their commercial property insurance policy.

This coverage covers lost revenue if your business has to temporarily close due to a covered loss, such as criminals damaging your machinery or stealing inventory. Business interruption insurance will pay for standard operating costs, like payroll, lease payments and relocation expenses.

Who Is Commercial Property Insurance Best For?

Commercial property insurance is useful for any type of business that has physical business assets that they’ll want to insure, such as commercial equipment, income-generating property or inventory. We list some types of businesses below that can benefit from this coverage.

Construction and General Contracting

Construction and general contracting firms often rely on expensive equipment to complete contract work for their clients. According to Balboa Capital, a new excavator can range from $100,00 to $500,000 and hydraulic hammers can cost as high as $20,000. If you’re financing these pieces of equipment, then your lender will likely require you to maintain commercial property insurance.

Food Vendors

Food vendors need equipment to store, prepare and distribute food, including walk-in refrigerators, industrial ovens and stoves, commercial dishwashers and cookware. According to WebstaurantStore, a restaurant supply store, kitchen equipment costs can range from $75,000 to $115,000. Buying used equipment can help you save on costs but insurance will help ensure you’re covered when kitchen accidents happen.

Real Estate

If you’re a landlord renting or leasing commercial property to tenants, then you should have commercial building insurance coverage. If there is damage to the property’s physical structure — a tree branch falls on the roof during a storm, for instance — it is your responsibility to make the necessary repairs. Your lender will require commercial property insurance if you have a mortgage loan.

Retailers (Products-Based Businesses)

Inventory and products count as commercial property and retail store owners will want some financial security if something happens to them. For example, if a burglar breaks into your store and steals your inventory, commercial property insurance can help recoup some of your losses.

SmartFinancial can help match you with a commercial property insurance policy that meets your coverage needs and budget. Just enter your zip code below or call 855.214.2291 to receive your free commercial insurance quotes.