Amid digital transformation, brick-and-mortar establishments are still commonplace for consumers. According to 2021 data by the Bureau of Labor Statistics, about 1.06 million establishments in the United States fall under the private trade sector. And a large portion of these businesses is commercial properties–from small businesses to shopping malls.
For business owners, a real estate investment is vital for operations. You need a place to house your products and attract more customers, of course. But like most properties, it’s a significant asset that requires protection. That’s where commercial property insurance comes in.
What Type of Insurance Is Commercial Property?
Natural disasters happen. In 2021, the United States experienced plenty of hurricanes, floods, and tornadoes that caused nearly $70 billion in damage to commercial properties. During such incidents, business owners turn to financial assistance programs to help ease the load. In fact, 40 percent of businesses are most likely to seek financial support, primarily due to unforeseen events, such as theft, vandalism, and third-party liability.
Commercial property coverage is insurance encapsulating various claims to protect businesses from such risks. That’s why it is essential for small business owners.
What Is a Commercial Property Insurance Policy?
Also known as commercial building insurance or business property insurance, a commercial property insurance policy is designed to protect your company’s physical assets. This type of policy can financially safeguard your business in uncontrolled circumstances.
Commercial business insurance is not a one-size-fits-all solution, as coverage limits and exclusions will vary depending on the policy. That’s why it’s crucial to be mindful of the elements of a policy and how to customize them to suit your unique needs. Here are the standard inclusions of a typical policy:
Insurance companies cannot cover everything. So, they follow a guideline of what is covered and what is not. That way, you’ll know the types of claims you can file for and those you can’t. Commercial property coverage prevents policyholders from filing frivolous claims and costing the company money.
A deductible is an amount you, as the policyholder, must pay out of pocket before the insurer starts footing the bill. The higher the deductible, the lower your premium payments will be.
The monthly premium is the amount you pay to keep your policy active. This amount depends on various factors, but primarily on your chosen limit and deductible.
Your commercial property insurance will likely have a coinsurance clause. This provision requires you to carry a certain percentage of the building’s actual cash value–usually 80 percent–to be eligible for full coverage.
What Does a Commercial Property Insurance Cover?
Depending on the insurance company, commercial property insurance can cover several risks. However, a standard policy focuses on the following coverages:
Commercial Building Insurance
This coverage option is an essential aspect of business property insurance. It can help protect your business’s physical assets, including the building itself and any permanent fixtures, like cabinets or plumbing.
Commercial Contents Insurance
If your business keeps any inventory or office equipment on the premises, commercial contents insurance protects these items in case of a covered loss, such as a fire. It is also known as business personal property coverage, often additional coverage to business property insurance. It covers the replacement cost value of the items within the business’s property.
Business Income Insurance
If your business needs to close temporarily due to property damage, business interruption insurance can help cover lost business income and expenses, like payroll and rent. However, the business income coverage might not always be a part of a standard commercial property insurance policy, so always ask about it when shopping for a policy.
Insurance for Other Structures
A policyholder must not forget to clarify coverage of other structures on their commercial property, such as a detached garage or storage shed. These structures often have different coverage than the business building, so it’s crucial to discuss this with your insurance agent.
How Much Does a Commercial Property Insurance Cost?
A commercial property insurance policy’s cost varies. The best way to estimate how much a policy will cost is to speak with a licensed insurance agent. However, according to a survey by The Hartford, the median annual cost is about $662. This figure comes from businesses in eight different industries.
Depending on other factors, the scale can increase to $1,000-$5,000 for midsize businesses, while large companies can pay tens or hundreds of thousands of dollars for their policies.
Factors That Affect Commercial Property Insurance Cost
The price of commercial property insurance varies depending on several factors, such as the following:
Value of Property
The value of your property is a significant factor in calculating commercial property insurance coverage. After all, the more valuable the business assets you need to insure, the more expensive the policy will be. To save on premiums, consider insuring only the essentials.
Location of Property
Another factor that can affect commercial property insurance costs is the location of your establishment. For instance, if your company is in an area prone to natural disasters, like floods or earthquakes, expect to pay higher rates than a business in a low-risk location.
Type of Property
The type of property can also impact commercial property insurance costs. For example, a manufacturing plant will typically cost more to insure than an office building. That is because the former carries a higher risk of professional liability claims.
How To Choose the Right Type of Insurance Policy
An insurance policy is also an investment on its own. Therefore, care and thought must go into the decision of what type to buy for your business. There are plenty of things you must take into account, such as:
Nature of your business
The first thing you have to do is take a good, hard look at your business. What does it do? How big is it? Do you have any employees? The answers to these questions will help you determine the insurance coverage that fits your business best. By understanding your business, you can find the policy that covers all your risks without breaking the bank.
Type of policy available
Risks can trigger a claim on your property insurance policies. Depending on your industry, you can choose from basic, broad, and special policy forms. These dictate when you can and cannot file a claim.
Other Prices from Different Companies
Aside from having an idea of what type of policy you need, shopping around for the best commercial property insurance price is always a good idea. Gather quotes from at least three different commercial property insurance companies and compare their rates. Be sure to read the fine print to know what you’re getting for your money.
While it’s possible to find the right commercial insurance coverages on your own, working with an insurance broker can make the process of insuring property a lot easier. A broker will help you understand your business and find the best coverage for your needs. They can also help you get the most bang for your buck by comparing rates from different insurance companies.
How to Apply for a Commercial Property Insurance
The process of getting insurance for a commercial building is relatively straightforward, but there are a few things you should keep in mind:
Gather the required documents
The first step is to gather the necessary paperwork. That includes your business license, tax information, and financial statements. You will also need a list of properties you want to insure, including their market value.
Fill out an application
Start filling out the application when you have all the required documents. This part is where you provide detailed information about your business property, including its size, location, and property type.
Get a quote
Before proceeding with the application, get a quote from the insurance company. It will give you an idea of how much the business insurance will cost and help you decide if it’s worth it. Many insurers offer free quotes.
Pay the premium
Once you have decided to proceed with the purchase, pay the premium. You can do this by credit card, check, or bank transfer. Be sure to keep a record of the payment for your records.
Receive the policy
After the insurer has processed your application and payment, you will receive the policy in the mail. Read it carefully to understand the coverage and benefits. Also, get the contact information of your agent or broker, so you know who to call in case you need to file a claim.
Maintain a continuous policy
To keep your coverage in force, maintain a continuous policy. That means paying the premium on time and keeping up with any changes in your business. If you let the business insurance lapse, you may have to pay a higher premium to reinstate it. Being late on payments can also lead to the cancellation of your policy.
No matter the size or type of business, having the best commercial property insurance is an absolute must to protect your business and its physical assets. A well-chosen policy can safeguard your business’s finances in case of an unexpected loss. It’s a proactive way to manage risk and keep your company running smoothly, no matter what happens.