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If you are a business owner, you need to protect your assets from damages and losses at all times. Commercial property insurance is essential for all business owners, whether a major incorporation or a small bakery.
What You Need to Know About Commercial Property Insurance
The importance of protecting your business assets by getting a comprehensive commercial property insurance cannot be overstated.
Business owners should get a realistic estimate of the kind of coverage they need in consultation with their insurance providers and by doing some basic market research. Choosing the best insurance plan for your commercial establishment can go a long way in securing you against any losses to your physical property and keeping your business running smoothly.
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Commercial Property Insurance FAQs
Commercial property insurance covers all the physical property that is part of your business. This includes the actual office space along with the furniture and fixtures, extending as far as your fence, landscaping and signage. It also includes all inventory, supplies, equipment and all the paraphernalia that is required for the business to run.
All this property is insured against theft, vandalism, fire, weather uncertainty and select kinds of natural calamities.
All tangible possessions that are listed as belonging to your office space are covered by commercial property insurance. Damages can be claimed in the event of a relatively minor event like a storm causing a tree to fall over your signboard, to a neighborhood fire destroying your office. Damages caused due to natural disasters like hailstorms, blizzards or heavy rains can also be considered for insurance claims.
Notably, commercial property insurance excludes two major natural calamities, floods and earthquakes, from their provisions.
Insurance companies typically offer three kinds of coverage for commercial properties. These are:
Basic Form Policy: This type covers the most commonly occurring perils – fire, theft and standard natural disasters – as would be clearly named in the policy document. It serves the insurance needs of most businesses.
Broad Form Policy: In addition to the coverage offered by the basic form policy, the broad form policy also protects your property against damages by falling objects, heavy snow or ice (or severely damaging precipitation in general) as well as collapsing structures. Given its nature, it is well-suited for businesses in hilly areas that are prone to damages by snowing in, landslides and avalanches.
Special Form Policy: It has a more comprehensive spectrum of perils, and covers everything except what the policy explicitly mentions. Therefore, the special form policy will protect your assets against everything except an ordinance of law, earthquakes, floods, war, nuclear hazards, intentional acts and any other perils that the policy specifically lays down.
It is imperative that the client carefully goes through the list of inclusions and exclusions while purchasing a commercial insurance policy, to get a clear idea of what they are paying for and what they still might be vulnerable to.
Commercial property insurance is a must-have for anybody who owns or rents an office space or a building for business purposes. The space would include not only the front office but also the storage area or the warehouse. You should also get commercial property insurance to protect against the loss of any equipment you might be employing to run your business – heavy machinery, computers and associated electronics.
In fact, you are also responsible for damages to the property of any other party, which might be on the premises at the time of the peril. For instance, a client might be carrying samples or prototypes for presenting in your office. If a fire damages these items while they are on your company premises, the owners can stake a claim in your property insurance to meet their losses.
Businesses operating out of leased spaces might need to buy insurance only for their equipment and not the physical space (which is taken care of by the landlord).
Alternatively, there might be a coinsurance clause in the lease agreement. The clause specifies a coinsurance percentage, that is, the percentage of the value of the building that you, as the tenant, need to provide property insurance for in the event of a loss.
For instance, if the coinsurance percentage is 40% for a building valued at $100,000, then you would have to arrange for a coverage of at least $40,000 in insurance. Otherwise, the owner could charge a penalty to cover for losses. You should have these terms confirmed while signing the lease agreement.
Commercial property insurance is pretty much for every business establishment that anticipates the minutest of risks to its assets. Given that some of the most expensive damages are caused by the most commonplace of perils, one can never be secure enough.
Small business owners need to pay special attention to their insurance needs, as complacency about the safety of their property can lead them to incur heavy losses, and even closure of business, if the losses are not covered.
The cost for commercial property insurance differs according to the size of the business, the breadth of the coverage sought, the commonly occurring and infrequent risks the business might be subject to and existing protective measures, among other variables.
The insurance company you approach would evaluate your insurance rates based on these parameters, and the cost to your company could range anywhere from $500 to $500,000.
In recent years, the vagaries of climate and accompanying disasters have seen a rise in insurance rates. Crime rates in the area where your business is located could have a direct relationship with the cost of insurance for your business, while safety precautions such as sprinklers and smoke detectors could bring down the rates.
Premiums are also different based on what method your company offers to calculate losses when claims are made. If you choose to determine losses based on actual cash value (ACV), your premium will be lower because the method involves replacement of damaged goods with similar items, adjusted for depreciation. On the other hand, electing to calculate using replacement cost (RC) means that the replaced equipment will be of comparable quality to the original, without accounting for the depreciation in value. RC would basically ensure practically new, identical replacements for your lost goods, and the premium for this variant would be higher.
The coverage designed for your business would, therefore, take into account numerous factors before an accurate quote is provided.
Although a prudent investment, commercial property insurance can be a major cost, especially for small businesses. To lessen the strain of the heavy premium, businesses could avail discounts or rate reductions that come with minimizing risk exposure.
This can be done by putting safety equipment in place to counter perils like fire, for example, construction using fire-retardant materials. Burglar alarms, shatterproof glass and surveillance mechanisms could be installed which bring down the risk of thefts.
Purchasing a Business Owner’s Policy (BOP) from an insurance company also offers you significant cost savings, as the property insurance and general liability insurance is bundled together in this product. You thus pay less than you might for both these insurance packages separately, provided your business is eligible.
When you go for a commercial property insurance policy, always ensure that you are properly informed about the regulations, provisions and discounts that you can avail as a business owner. Not only does it save you money in the short as well as the long term, but also offers you peace of mind that any losses you might incur in the business are compensated for.
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