How Does Commercial Property Insurance Work?

August 2022
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A fire department responds to a fire every 23 seconds, on average, in the United States, according to the National Fire Protection Association. In 2020, commercial properties made up more than a quarter (26.3%) of the fire losses resulting from the 1.3 million fires that broke out across the country.

Fire isn't the only threat to your commercial property, either.

Break-ins, theft, vandalism, and even the weather could all result in damage to your commercial property: both the structure itself and the merchandise, equipment, and other property kept inside your building.

Protect Your Property with Commercial Property Insurance

Commercial property insurance will reimburse your business if you incur losses to your physical business and property from a covered incident.

Commercial property insurance typically covers:

  • Physical building structure (offices, warehouses, retail stores, and more)
  • Inventory, including perishable goods and food
  • Supplies and equipment such as tools, computers, and machinery
  • Furnishing, including office desks, chairs, and appliances

Commercial property coverage can even help you protect other people's property. If you've rented equipment or take possession of customer-owned items, your insurance coverage is intended to reimburse items that are stolen or damaged.

How Does Commercial Property Insurance Work?

As a policyholder, you typically get a choice of receiving replacement value or cash value for your damaged or stolen property.

Replacement value means your insurance carrier will reimburse equipment with a brand-new equivalent. Replacement value policies typically come with higher premiums compared to cash value policies.

Cash value means your carrier will pay out the current cash value for your lost or damaged items. Because many items depreciate over time, the cash value may not be enough to replace the equipment with a brand-new equivalent and you may have to pay out of pocket to cover the difference.

What Damage is Covered by Property Insurance?

It's important to know what incidents (perils) are covered by your policy. Some policies are considered "all-risk," which means they'll cover just about anything that isn't specifically written as an exclusion.

On the other hand, you could have a "named peril" policy that excludes everything except the perils specifically named in your policy.

That's a big difference between everything is covered and very little is covered. But, in general, most commercial property insurance is designed to cover these basic perils:

  • Fire
  • Lightning
  • Explosion
  • Smoke
  • Windstorm
  • Hail
  • Riot
  • Civil commotion
  • Damage caused by an aircraft or vehicle
  • Vehicles
  • Vandalism
  • Sprinkler leakage
  • Sinkhole collapse
  • Volcanic action

Common Commercial Property Exclusions

Regardless of whether your policy is written as an all-risk or named peril, there are some pretty common exclusions written into most all commercial property coverages. These include:

  • Flood
  • Earthquake
  • Terrorism
  • War and military action
  • Intentional damage
  • Nuclear hazard
  • Normal wear and tear

Keep Your Business Property Safe

From the building itself to your business property that's inside, and even items belonging to other people, commercial property coverage is designed to protect the property you use to run your business.

No one knows when a fire, vandal, or even a riot will strike. When you have commercial property coverage, you don't have to worry about paying out of pocket to replace everything your business needs to succeed.

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