What commercial property insurance covers
Commercial property insurance protects the physical assets a business depends on. The SBA describes it as coverage for loss of or damage to company property from events such as fire, storms and vandalism. A typical policy can insure:
- Buildings you own, including permanently installed fixtures and machinery
- Business personal property: furniture, computers, tools, stock and inventory, and improvements you made to a leased space
- Property of others in your care, such as customer goods
- Business income and extra expense: lost net income, continuing payroll and the extra costs of operating from a temporary location after a covered loss
Covered causes of loss
Most U.S. policies use ISO causes-of-loss forms. The basic form lists named perils such as fire, lightning, explosion, windstorm, hail, smoke, vandalism and sprinkler leakage. The broad form adds perils such as falling objects, weight of snow and certain water damage. The special form covers all risks of direct physical loss except those specifically excluded, and is usually the best choice when available.
Valuation and coinsurance
| Term | What it means |
|---|---|
| Replacement cost | Pays to repair or replace with new property of like kind and quality, without deduction for depreciation. |
| Actual cash value | Replacement cost minus depreciation; cheaper, but pays less. |
| Agreed value | Insurer and insured agree on values in advance, suspending the coinsurance clause. |
| Coinsurance | If you insure for less than the required percentage of value (80% is a common example), claim payments are reduced proportionally. |
Exclusions and gaps
Standard forms exclude flood, earth movement, wear and tear, mechanical breakdown, war and nuclear hazard, and limit mold and theft of certain items. The NAIC notes that business income coverage generally requires physical damage and that ISO introduced a virus or bacteria exclusion in 2006. Flood coverage for commercial buildings is available from the National Flood Insurance Program, up to $500,000 for the building and $500,000 for contents according to FEMA, and from private insurers for higher values. Equipment breakdown, ordinance or law (the extra cost of rebuilding to current codes) and spoilage are common add-ons.
What drives the price
Underwriters look at four groups of factors, often summarized as COPE: construction (frame, masonry, fire-resistive), occupancy (what happens inside), protection (sprinklers, alarms, distance to a fire station and hydrant) and exposure (neighboring buildings, wildfire, wind and flood zones). Insured values, deductibles and loss history matter too. Our commercial property calculator gives an indicative estimate.
How to choose and how claims work
Have buildings appraised periodically so limits keep up with construction costs. Compare valuation basis, causes-of-loss form, deductibles (including separate wind or hail deductibles in coastal states), business income limits and the period of restoration. Companies with several locations should ask about blanket limits, which apply one limit across multiple buildings or types of property instead of a separate limit for each, reducing the risk of being underinsured at a single site. Small firms often get property and liability together in a business owners policy. After a loss, prevent further damage, photograph everything, keep damaged items until the adjuster sees them and submit a sworn proof of loss when the insurer requests it.
State and international notes
Each state regulates property insurance forms and rates, and coastal and wildfire states have residual market plans for hard-to-place risks. Companies with locations abroad commonly use a multinational property program: a master policy in the U.S. plus locally admitted policies in countries that require them, with difference-in-conditions and difference-in-limits cover filling gaps. Some countries run national catastrophe schemes, such as Spain's Consorcio de Compensación de Seguros. Polis Re helps you compare insurers and request quotes.
