Commercial Property Insurance for Buildings and Business Assets

A commercial property policy may cover:

• Buildings — owned or leased improvements
• Business personal property — equipment, furniture, fixtures
• Inventory
• Tenant improvements and betterments
• Business income and extra expense
• Equipment breakdown
• Outdoor signs
• Valuable papers and records

Coverage can be written on a replacement cost or actual cash value basis. Replacement cost is generally preferred because it pays to replace the property without deducting for depreciation.

The most common commercial property mistakes include:

• Underinsuring the building — Replacement cost increases over time. A building limit that was accurate years ago may no longer be sufficient. Labor, materials, and code requirements should be reviewed.
• Ignoring business personal property — Equipment, furniture, fixtures, and inventory should be listed and insured at correct values.
• Skipping business income coverage — If the business cannot operate after a covered loss, business income coverage can replace lost revenue during the restoration period.
• Not disclosing renovations — Significant improvements can increase building value and should be reported to the insurance company.
• Incorrect occupancy information — Vacant buildings and mixed-use properties are rated differently. Providing accurate occupancy information is important.

Business income coverage can replace lost revenue when a covered loss forces the business to close or reduce operations. Extra expense coverage can pay for additional costs incurred to keep the business running during the restoration period, such as renting temporary space or equipment. These coverages are often overlooked but can be critical to business survival after a major loss.

Standard commercial property policies typically do not cover mechanical or electrical breakdown of equipment. Equipment breakdown coverage fills that gap and can cover the cost to repair or replace covered equipment that fails due to mechanical, electrical, or pressure-related causes.

Vacant buildings present a different risk profile than occupied buildings. Standard commercial property policies often reduce or eliminate coverage after a property has been vacant for a specified period, typically 60 days. If a property is vacant or will become vacant, coverage should be reviewed and adjusted accordingly.

Pricing is affected by:

• Building value and replacement cost
• Year built, construction type, and roof age
• Electrical, plumbing, and HVAC updates
• Occupancy type
• Location and state
• Business personal property values
• Loss history
• Security and fire protection systems