Like most companies, your consulting business probably relies to some extent on its property, including office space, computers and other technology, and furniture. If this property is unexpectedly destroyed, lost, or damaged, whether by fire, theft, or another common peril, it could have a significant impact on your finances. Not only are repairs and replacements costly, but in some cases, your ability to efficiently operate your business may be affected if key property is damaged.

Commercial Property Insurance is a common type of insurance that most companies purchase to protect the value of their property. If your property is damaged or destroyed, your Commercial Property policy would pay for it to be repaired or replaced. If you run a small consultancy that works remotely rather than from an office building, it’s still important to consider this coverage since homeowner’s and renter’s insurance typically do not cover business-related losses. Commercial Property Insurance can help you operate your business with peace of mind, knowing that an unexpected disaster will not financially devastate your company.

What is Commercial Property Insurance for consultants?

Commercial Property Insurance protects your business property from damages due to a covered cause of loss, including fire, lightning, windstorm, and other perils. If your office building is damaged in a storm or your computer equipment is destroyed by a fire, Commercial Property Insurance can pay for the repairs or replacement of your property. This is absolutely crucial, particularly for small consulting firms, as dealing with a disaster can be extremely costly and have a major effect on your ability to do business.

Examples:

• The HVAC system in your office building malfunctions, causing a fire to break out. Your management consulting firm suffers significant damage, with fire and smoke damage causing the building to be uninhabitable and destroying all of your computer equipment. Your Commercial Property policy would pay for the loss.
• Over the weekend, someone breaks into your home office and steals your work laptop and other business equipment. Your insurer would pay for you to replace the items.

What property does Commercial Property Insurance cover?

Commercial Property Insurance covers buildings and the contents of those buildings, including furniture, computer equipment, and office supplies. If you operate an independent consultancy that primarily does work from home, it’s important to remember that business property is typically not covered by a homeowners or renters insurance policy. In order to protect your business property, you’ll need a Commercial Property policy.

Buildings

Commercial Property Insurance covers commercial buildings or offices you own or lease. Coverage includes permanent fixtures like plumbing and electrical systems. Commercial Property Insurance also commonly covers buildings that are in the process of being built, outdoor fences or signs, and other outdoor property not directly attached to the building.

Example:

• A heavy windstorm blows an outdoor decorative hanging planter into your IT consulting company’s window, breaking the window. Your insurer would pay to replace the window and the item.

Contents

Commercial Property Insurance covers the contents of your building or offices, including items such as computers, equipment, and furniture. If your company leases equipment, this property can also be covered by your policy. If your consulting firm relies heavily on physical documents like client files or billing records, Commercial Property Insurance provides some minimal coverage. More extensive coverage can be purchased with an added endorsement for valuable papers and records coverage.

Example:

• A fire caused by a faulty toaster sets off the fire sprinkler system at your office building. The water damages computer equipment, furniture, and valuable client records. Your insurer would pay for repair or replacement of the damaged property.

Property of Others

If the property of others is in your care, custody, or control and located on your business premises, Commercial Property Insurance will cover it.

Example:

• Your market research consulting company’s printer breaks, so you borrow a printer from another company in your building. Your HVAC system develops a leak, damaging the borrowed printer. Your insurer would pay to repair or replace the printer.

What property isn’t covered by Commercial Property Insurance?

Standard Commercial Property Insurance policies exclude a number of types of property. For consultants, the most relevant exclusion is electronic data. Any data or software that you’ve stored electronically on computers, servers, or media is not covered by Commercial Property Insurance. You can add coverage for electronic data to your policy via endorsement or a separate electronic data coverage policy.

What risks are covered by Commercial Property Insurance?

Commercial Property Insurance is offered on an open perils or named perils basis. Named perils policies specifically define what incidents are covered; any hazards not mentioned in the policy are excluded. Open perils or all-risk policies cover everything except for specific exclusions mentioned in the policy.

Named Perils

The exact hazards that are covered will vary from insurer to insurer, so make sure you pay attention to the covered perils section of your insurance contract. Common named perils include:

• Fire
• Lightning
• Explosion
• Windstorm or hail
• Smoke from accidental fire
• Damage from vehicles or airplanes (excluding those owned or operated by the business)
• Riots or civil commotion
• Vandalism
• Water damage from plumbing, HVAC, or sprinklers
• Falling objects
• Sinkhole collapse

Example:

• A severe hailstorm damages the roof of your office building. Your insurer would pay for repairs.

Open Perils

Open perils policies cover any damage that isn’t specifically excluded in your insurance contract. These policies are considerably more expensive than named perils policies since they cover a wider range of potential perils. For companies that rely on expensive electronic equipment or are exposed to a high variety of risks, this coverage may be worth the cost. For companies with less property to insure and lower risk exposure, a named perils policy may be sufficient.

What perils are excluded from Commercial Property Insurance?

There are a number of perils that are typically excluded from both open perils and named perils policies. These include:

• Ordinance or law. Any loss or damage sustained due to the compliance or enforcement of any ordinance or law is excluded from coverage.
• Earth movement. Natural disasters such as earthquakes, landslides, volcanic eruptions, or any movement of the earth or soil are excluded from coverage. Companies in areas prone to natural disasters can add an endorsement to their Commercial Property Insurance policy to cover those risks, or they can purchase a separate policy.
• Water. Damage or loss caused by water events, including flood, tsunami, mudslide, and sewer or drain overflow, is excluded from coverage.
• Fungus, mold, and rot. Damage resulting from the presence of fungus, wet or dry rot, or bacteria is excluded from coverage.
• Utility services. Any failure in utilities, including power surges, power failures, and water shortages, is excluded from coverage.
• Governmental action. Any property that must be seized or destroyed under governmental authority is excluded from coverage.
• Nuclear hazard. Damage caused by nuclear reaction, radiation, or radioactive contamination is excluded.
• War and military action.

What’s the difference between replacement cost and actual cash value policies?

When you select a Commercial Property Insurance policy, you can choose to insure your property for either replacement cost or actual cash value. Replacement cost coverage will pay for you to repair or replace your property with a new item of similar kind and quality to the original. Actual cash value takes depreciation into account, paying only for the value of your property when it was damaged or destroyed. It is common for Commercial Property policies to provide the replacement cost value for your building and the actual cash value for your business property.

Example:

• An electrical fire breaks out in your offices, damaging monitors, cameras, and other video conferencing equipment in your conference room. Although the items cost $1,800 when they were purchased three years ago, their current value is $800 due to depreciation. Brand new replacements would cost $1,500. If you have a replacement cost policy, your insurer will pay $1,500, the cost of the new items. An actual cash value policy will only pay $800, or the current value of the items.

What happens if your property isn’t valued properly? What is coinsurance?

Insurers typically require you to insure a minimum percentage of your property’s value (often 80%) in order to receive full coverage in the case of a loss. This is called coinsurance; it is included in most Commercial Property policies to discourage underinsurance.

Business owners may be tempted to underinsure their property because most property damage does not result in a total loss of the property, and purchasing a policy that covers a lower value would be less expensive. Coinsurance is a way for insurers to reduce the amount they will pay for a claim if too little of the value of the property is covered. In cases where the property is underinsured, the insurer will reduce coverage proportionally.

Example:

• A company’s insurer requires a coinsurance minimum of 80%. The policyholder insures 50% of the value of its property in order to pay a lower premium. The limit of insurance is $2 million. The policyholder suffers a loss of $800,000. Even though this is less than the limit of insurance, the insurer will only pay for 50% of the loss, or $400,000.

Are there deductibles in Commercial Property Insurance?

Like many types of insurance, Commercial Property policies typically have a deductible, which is the amount of a loss your company is responsible for paying before the insurer’s coverage begins. Higher deductibles result in lower premiums because the amount the insurer would pay is lower.

Final Word

An unexpected disaster could be an inconvenient and costly problem for your consulting company. It’s important to ensure that you are prepared for such incidents. Commercial Property Insurance is a key coverage that will help your company recover in the event that its valuable property is lost, damaged, or destroyed. With the financial assistance this coverage provides, you and your clients can rest assured that a major catastrophe would not interrupt your company’s ability to function.