Commercial Property Insurance
Commercial property insurance protects your financial services business’ physical assets in case of unforeseen accidents or natural disasters. In such events, having commercial property insurance makes it easier to recover by reimbursing you for the cost of replacing damaged property.
For financial professionals, commercial property insurance is important if you own your building or office condo, or if you have valuable property in your offices such as computers, expensive furniture, or artwork.
What does commercial property insurance cover?
Commercial property insurance covers buildings and their contents.
Commercial property insurance provides protection against damage to commercial buildings or offices that your business owns or rents. Any building improvements, new fences, or landscaping are often included in the coverage. Depending upon the terms of your lease, some landlords may require tenants to have commercial property insurance to cover their rental.
An example: Your accounting firm owns the office building that you occupy. After a winter of heavy snowfall, your building’s roof is damaged and moisture is leaking into your office ceiling. Your commercial property insurance would cover any damage to the building caused by the moisture.
Along with the buildings themselves, commercial property insurance also covers their contents. This includes computers, furniture, artwork or any other valuable property that your business owns that primarily stays at your office. Financial services businesses also often store valuable documents and records in their office space. The cost to recover or replace these records is covered by commercial property insurance to some extent. Additionally, some vendors may mandate you to have commercial property insurance to lease their equipment.
For example, your financial services business has custom furniture and artwork in your office. A burst pipe in your office building causes substantial water damage to your furniture and artwork. Commercial property insurance could reimburse you for the damage to your business property.
What risks are covered by commercial property insurance?
Commercial Property insurance can be purchased on the basis of open perils or named perils.
Open perils policies cover risks that are not specifically excluded by name from the insurance policy. On the other hand, named perils policies cover only the risks specifically named in the contract. Open perils policies offer much wider coverage and have higher premiums. Earthquakes and floods are usually excluded from all kinds of commercial property insurance. Employee dishonesty and theft are also common exclusions.
Named perils policies usually cover the following causes of loss:
- Lightning Damage
- Vehicular Damage
- Non-Flood Water Damage
- Damage from Airplanes
- Building Collapse
While these are the most common named perils, every insurance company may offer slightly different coverages. Common exclusions from named perils policies include:
- Normal Wear and Tear
- Robbery or Burglary
- Power Failure
- Computer Failure
- Inventory Shortages Without Physical Evidence of the Inventory
- Intentional Losses
- Nuclear Reaction or War
Open perils policies cover property damage for any reason not specifically excluded in your policy. Open perils policies usually contain the same exclusions as named perils policies. They often also exclude damage caused by:
- Mold and Fungus
- Government-Caused Losses
- Animal Infestations
- Mechanical Problems
- Sewer Backups
Replacement Cost vs. Actual Cash Value
Insurers will offer a choice between Actual Cash Value (ACV) and Replacement Cost (RC) when writing your policy. ACV covers the actual value of the damaged property, considering depreciation and obsolescence. RC covers the cost of replacing the property with something similar in kind and quality. It does not account for depreciation. RC premiums are higher than ACV premiums because the potential payouts are higher.
Deductibles apply to most commercial property insurance policies. A deductible is the amount of a loss that your business is responsible for before your insurance coverage kicks in. Deductibles usually apply to each individual loss. They aim to incentivize businesses to care for their property and reduce insurer risk. Higher deductibles lower premiums because they reduce the amount your insurer pays in the event of a claim.