What is commercial property insurance?

Property insurance is meant to protect the investment you’ve made in your business property, including office space, tools, equipment, inventory, and other property that you use to run your business. If a fire destroys your office building or your tools or equipment are stolen from your warehouse—these are all cases where property insurance would cover you for the value of the property that is damaged or destroyed.

What does commercial property insurance cover?

Buildings

If you own the building or a business condo that houses your business, commercial property insurance can pay for the cost to repair or replace the building if it is damaged or destroyed by a covered cause of loss.

Example: An overloaded electrical outlet in your office overheats and catches fire overnight, causing the fire sprinkler system to activate. There is substantial fire and water damage to your building due to the fire. In this scenario, the building coverage of commercial property insurance would cover the cost to repair the building.

Business personal property

Any property that your business owns that is stored at your office or building is also covered under commercial property insurance. If your property is destroyed by a covered cause of loss, the insurance company will reimburse you for the value of the property.

For property that is kept at a client site or in a vehicle, commercial property insurance provides limited coverage. To more fully cover this equipment, you’ll need mobile equipment coverage.

Commercial vehicles made for public roads are also excluded from property insurance policies. To cover commercial vehicles, you’ll need commercial auto insurance.

Example: You have a storage area at your office where you store wood mouldings that you sell to clients for floor and ceiling work. Over the weekend, a pipe in the bathroom bursts and floods the storage area. Your wood moulding products are damaged by the water. The business personal property coverage of commercial property insurance would reimburse you for the damaged products.

» Learn more about what commercial property insurance covers

What doesn’t commercial property insurance cover?

Mobile equipment

Commercial property insurance generally only protects property on your business premises, which can exclude property or equipment that is mobile, stored at a job site, or in a vehicle. For full coverage on mobile equipment, you’ll need separate mobile equipment coverage, sometimes called Inland Marine Insurance – Mobile Equipment. Mobile equipment insurance is intended to protect your property no matter where it is located. For contractors, this type of coverage is particularly important, as much of your property may be machinery or equipment that is moved from job site to job site. A few examples of mobile equipment include cranes, compressors, pumps, tools, and mixers.

Example: Your roofing company owns a cherry picker, which you’ve stored at a client site to work on the roof. While there, the cherry picker is damaged by a windstorm. In this scenario, mobile equipment insurance would cover the cost to repair or replace the cherry picker.

For equipment that you are leasing or renting, mobile equipment insurance can also provide coverage. While some insurance policies may include mobile equipment you rent, lease, or borrow from others, often times this is excluded and needs to be added in through an endorsement.

Installations

For contractors, making sure you’re covered on property that is in the process of being installed is particularly important. Much of the work you do may involve the transport and installation of high-value materials or fixtures. Commercial property insurance alone will not provide ample coverage, so often times contractors will secure an installation floater, sometimes known as Inland Marine Insurance – Installation Floater, which provides coverage for personal property that is in storage, in transit, awaiting installation on a job site, or being installed.

Example: As you are transporting a custom marble bathtub to your client’s home, your truck runs over a deep pothole, creating a large crack in the marble tub. The entire tub will need to be replaced. In this scenario, an installation floater would provide coverage for the damaged bathtub.

What risks are covered by commercial property insurance?

Property insurance covers some, but not all, causes of loss. Depending on the contract you have with your insurance company, coverage may vary. It’s important to review the details of coverage carefully to ensure your contracting business will be covered in relevant situations.

An important distinction in property insurance loss coverage is the concept of named perils versus open perils. When property insurance is purchased on a named perils basis, this means that only the specific risks listed within the insurance contract will be covered. If a risk isn’t listed, it isn’t covered. With open perils, all loss types will be covered, except those that are specifically listed in the contract as excluded. Open perils premiums are generally higher than named perils premiums because open perils coverage is more comprehensive.

Both flood and earthquakes are commonly excluded from property insurance policies including open perils policies. Also, dishonesty and theft by employees are usually excluded as well.

Named perils

The most commonly covered named perils include:

• Fire or lightning
• Explosion
• Theft or vandalism
• Damage from vehicles or airplanes (excluding those owned by the business)
• Water damage, sprinkler leakage, or burst pipes (but water damage from flood is excluded)
• Windstorm or hail
• Smoke from accidental fire
• Riots or civil commotion
• Sinkhole collapse or building collapse

Every insurance contract covers different perils, so it is important to read your contract and discuss with your agent or insurance company.

Common exclusions from named perils policies include:

• Flood
• Earthquake
• Employee theft or dishonesty
• Nuclear reaction or war
• Wear and tear
• Power failure or computer failure
• Robbery & burglary
• Pollution
• Changes in humidity and temperature
• Inventory shortages when there is no physical evidence to show what happened to the property
• Losses from intentional acts

Open perils

Under open perils coverage, your property will be covered if it is damaged or lost for any reason, unless the reason is specifically excluded in the insurance contract. Open perils policies have the same exclusions listed in the named perils section above. In addition, other common exclusions to open perils policies include:

• Animal or insect infestations
• Fungus and mold
• Losses due to governmental actions
• Rust or corrosion
• Sewer backups
• Mechanical breakdowns

How much does commercial property insurance cost?

The cost of commercial property insurance depends on a number of factors, including the type of business you run, the type of building, location, and building materials. While the range of pricing can vary widely, most small business owners can expect to pay annual premiums between $500 and $1,000.

How much commercial property insurance do I need?

The coverage amount you need depends on how much property you own. Typically, business owners will purchase enough coverage to cover the replacement value of the building, if it is owned by the business, and the contents of the building, including inventory and supplies. It is important to accurately assess the value of a building and its contents in order to ensure accurate premium costs.

How do I get commercial property insurance?

There are many factors to consider when purchasing commercial property insurance—from the financial strength of an insurer to the pricing that you’re offered. Commercial property insurance can be a fairly custom product, as each business property is unique, so it is particularly important to select an insurance provider that can build custom coverage to fit your particular business needs.

When selecting an insurance company, there are three main factors you should look at:

• The financial strength of the insurer
• Pricing
• Reputation for customer service

» Learn more about how to get commercial property insurance