Business Property Insurance: Coverage, Costs And Expert Tips (2024)

There are many types of accidents that can cause a major financial setback for a small business. A burst pipe or severe weather could destroy your office and equipment. A fire could wipe out your inventory and business records. That’s why commercial property insurance is so important.

What Is Commercial Property Insurance?

Commercial property insurance is a contract between your business and a small business insurance company that specifies how you’re compensated if your business’ physical assets are stolen, destroyed or damaged due to a problem covered by your policy. This coverage is also called business property insurance.

Commercial property insurance is often bundled together with general liability insurance and business interruption insurance as part of a business owners policy (BOP).

How Much Does Commercial Property Insurance Cost?

Commercial property insurance has a median cost of $67 per month or about $800 a year, according to Insureon.

You don’t need to be a property owner to get commercial property insurance for your business. You can get coverage if you rent your office space and/or your office equipment.

The cost of commercial property insurance chiefly depends on the value of the business property and assets. Someone insuring a home office would pay far less for commercial property insurance than a business with its own office building, but both have business property that could be protected with a commercial property insurance policy.

Other factors that insurance companies consider when pricing commercial property insurance policies include:

• Your business location. Is it prone to wind or rain storms? Severe weather can damage business property.
• The construction of your building. Was the building made with fireproof construction materials? Is the plumbing and the electrical up to date?
• Your industry. An accountant’s office will likely carry far less risk than a busy delicatessen.
• Protection against fire and theft. How close is the nearest fire station? What kind of fire alarm or sprinkler system does your business have? What type of security system is on site to thwart thieves?

What Does Commercial Property Insurance Cover?

Commercial property insurance pays to replace or repair your business property if it is damaged due to a problem covered by your policy, such as a theft or fire.

Look at whether the policy is a “named perils” or “open perils” policy.

• A named perils policy will cover costs only from problems specifically listed in the policy, which typically include fire, theft, vandalism, wind damage and more.
• An open perils policy provides broader protection. It will cover any problem except those listed as exclusions (for example, flood damage). Because of its better protection, it will cost more than a named perils property insurance policy.

What Problems Are Covered by Commercial Property Insurance?

The types of problems covered by commercial property insurance typically include:

• Fire
• Lightning
• Wind
• Hail
• Theft
• Vandalism

The types of physical assets covered by commercial property insurance include:

• Building (rented or owned)
• Business records
• Computers
• Equipment
• Furniture
• Inventory
• Outdoor fixtures (such as fences and signs)
• Personal property
• Supplies
• Tools

If you rent your business location, your landlord’s insurance would generally cover damage to the building. For example, if hail damaged the roof, your landlord’s insurance would pay to repair it.

But your lease agreement may state that you are responsible for certain types of damage to the building. For example, your landlord may require you to be responsible for damage to windows, HVAC units and any modifications you make.

What Does Commercial Property Insurance Not Cover?

It’s important to know the instances where business property insurance won’t pay out and where you may need extra coverage. Situations when it won’t cover you include:

• You cause a car accident when driving a company car on a business delivery. This scenario would be covered by commercial auto insurance.
• Severe weather caused flooding in your office building. Flood damage is not covered under commercial property insurance. You would have to buy a separate flood insurance policy to cover your office space for the costs of repairing flood damage.
• You accidentally damage a client’s wall while visiting them on business. This type of property damage would be covered under general liability insurance.

Who Needs Business Property Insurance?

Commercial property insurance isn’t required by law but it is considered an essential coverage type for most small business owners. Without it, you would have to pay out of pocket to repair or replace your business property if it were damaged by a problem, such as vandalism or severe wind. In a worst-case scenario, like a massive fire, this could put you out of business if you don’t have insurance as a financial backup.

The types of small business owners who purchase commercial property insurance typically:

• Own or rent an office, store or building.
• Own or rent tools and equipment.
• Have inventory or products.
• Depend on business assets like computers and office equipment.
• Have business records and documents.

How to Get the Best Commercial Property Insurance

One of the best ways to get commercial property insurance is to bundle it with other essential business insurance types that cover a range of problems, like accidental injuries to others and lost income. You may also want coverage that pays to replace your business property with new, equivalent items. Here are some things to consider when buying commercial property insurance.

Buy Commercial Property Insurance as Part of a Business Owners Policy

If you’re a small business, you can buy property insurance as part of a business owners policy (BOP). A BOP combines commercial property insurance, general liability insurance and business interruption coverage. Buying the policies in a BOP can be cheaper than buying them separately.

General liability insurance protects a business from many claims, such as bodily injury and property damage, copyright infringement, reputational harm and advertising injury. If someone sues your business for one of these issues, the business liability insurance will pay legal costs and any settlements or judgments.

Business interruption insurance helps a business recover lost income due to a problem covered by the policy. If you’re unable to open your business because of a problem covered by the policy—such as a fire or windstorm—this type of insurance reimburses you for lost business income.

Business interruption insurance is also known as business income insurance.

A business owners policy costs an average of $57 per month, according to Insureon.

Replacement Cost Coverage vs. Actual Cash Value Coverage

There are usually two types of commercial property insurance: replacement cost and actual cash value.

• Replacement cost coverage will pay to replace your business property with similar, new items. There is no deduction for depreciation.
• Actual cash value coverage will reimburse you for the present-day value of the property that was damaged. This takes into account depreciation, so a claims check won’t be enough to replace what was lost with new items; you would have to pay the difference. However, having actual cash value coverage will reduce your monthly insurance bill.

Replacement cost coverage pays to replace destroyed business property with new, equivalent items.

Should I Buy Commercial Property Insurance for a Home-Based Business?

Depending on the size and needs of your business, home-based business insurance through your homeowners insurance company might be sufficient.

But commercial property insurance provides more coverage than a homeowners insurance policy and can better protect a business and all its physical assets and equipment.

Business Property Insurance FAQs