Running a business comes with many responsibilities, and one of the most crucial is ensuring your physical assets are well-protected. According to the Federal Emergency Management Agency, 40% of small businesses never reopen after experiencing a significant disaster, highlighting the critical need for commercial building insurance. This coverage safeguards your property against various risks and provides financial security for your business.
In this article, we’ll explore the essentials of commercial building insurance with expert recommendations from John Carroll, a commercial lines underwriter at Central Insurance. Whether you’re a seasoned business owner or just starting out, comprehending Commercial Building insurance is vital for mitigating potential losses.
What is Commercial Building Insurance?
Commercial building insurance is critical protection against physical damage to your business property. It is a comprehensive term that includes a handful of coverages to protect businesses that own a commercial building on their property. This insurance covers a broad range of perils, including fires, wind, hail, explosions, theft, and vandalism.
By transferring the risk of property damage to the insurance company, you free up capital to reinvest into growth opportunities for your business. This financial flexibility is essential for expanding operations, upgrading facilities, or pursuing new ventures.
Did you know? Businesses should consider a Business Owner’s Policy (BOP). A BOP bundles essential coverages such as property, liability, and more into one package to simplify comprehensive insurance. Learn more about Central’s Business Owners Policy.
“Your building property is a huge asset,” Carroll explains. “If you have this protection, its whole purpose is to transfer that potential financial burden to your carrier so you can use money freely for your business instead of keeping it in an emergency reserve.”
If you hold a mortgage on your commercial property, your mortgage company will require you to maintain adequate insurance coverage to ensure the lender’s investment is protected in case of damage to the property.
Types of Coverage in Commercial Property Insurance
If you own your building, commercial building insurance is the best option to cover the building and its contents in addition to your property insurance. If your business rents a building, you may consider commercial property contents coverage.
Understanding the types of coverage offered by commercial building insurance is essential when protecting your commercial property. Insured property can include buildings and/or the business contents of those buildings specifically described in the insurance policy. Here are the two main categories of property coverage:
| Building Coverage: Property coverage encompasses protection for the physical structure of your building and its integral components. | Contents Coverage: Contents coverage extends beyond the building to include the assets and inventory housed within. |
| This coverage may include: Buildings and Structures: Coverage for the main building and any additional structures on the property. Permanently Attached Equipment and Fixtures: Protection for equipment and fixtures permanently affixed to the building, such as HVAC systems, plumbing, and electrical wiring. Outbuildings and Signage: Coverage for any outbuildings, sheds, or detached structures, as well as signage associated with your business. |
This coverage may include: Business Equipment and Machinery: Protection for machinery, tools, and other equipment essential to your business operations. Office Furniture and Supplies: Coverage for furniture, computers, office supplies, and other items used in your business’s day-to-day operations. Inventory and Stock: Protection for the inventory or stock of goods stored on the premises, ensuring you can recover financially in case of damage or loss. |
Learn More about Pollution Liability Insurance: If your business deals with hazardous materials, you may consider Pollution Liability coverage.
Business Interruption insurance is another great option. This coverage covers lost income and operating expenses if a covered peril affecting your property temporarily shuts down your business. On the other hand, Equipment Breakdown insurance can cover repairing or replacing essential machinery that breaks down unexpectedly.
Lastly, Umbrella Insurance offers additional liability coverage above and beyond the limits of your primary General Liability and Automobile Liability insurance policies. An Umbrella policy is an excellent insurance option to extend your coverage limits to protect against larger losses.
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Common Covered Losses in Commercial Building Insurance
Commercial building insurance covers a wide range of potential losses that can affect the physical building you own. Coverage for the losses below is crucial to ensure that your business can recover quickly and continue operating in the event of unforeseen circumstances.
- Fire Damage: Protection against damage caused by fires, including structural damage and destruction of property.
- Weather-related Damage: Coverage for damage caused by severe weather events such as wind storms, hurricanes, tornadoes, and hail.
- Water Damage: Protection for damage caused by burst pipes, plumbing leaks, or wind-driven rain.
- Theft and Vandalism: Coverage for losses resulting from theft, burglary, or vandalism to the building or its contents.
- Accidental Damage: Protection against accidental damage to the building or property caused by human error or negligence.
- Explosion Damage: Coverage for damage from explosions, whether due to natural gas leaks or other causes.
Common Exclusions in Commercial Building Insurance
While commercial building insurance provides comprehensive coverage for many risks, specific exclusions may apply. It’s always best to discuss personalized coverage with your insurance agent to have the appropriate coverage for your business building’s needs. Below are some common exclusions that your business may need extra coverage against:
- Wear and Tear: Most insurance policies do not cover damage from normal wear and tear over time.
- Maintenance Issues: Damage caused by lack of maintenance or neglect typically isn’t covered by insurance. Ensure you regularly inspect and maintain your building to provide documentation for your records.
- Earth Movement: Damage caused by earthquakes, sinkholes, or landslides are often excluded from standard policies and may require additional coverage.
- Flood Damage: Flood damage is typically not covered by commercial building insurance and requires a separate flood insurance policy.
- Loss of Business Income: You may consider Business Income coverage to cover lost income due to covered perils.
Five Factors to Consider When Choosing Commercial Building Insurance
Choosing the right commercial building insurance for the building you own involves thoroughly assessing your business’s unique needs and potential risks. The same steps are also applicable for those looking to insure a rented building with commercial property coverage. Here are key factors that Carroll encourages you to consider to ensure you have the appropriate coverage:
- Asset Assessment: Work with an experienced insurance agent to evaluate all your owned assets, including your building. This assessment will identify your property values and any associated risks.
- Review of Hazards: Conduct a thorough review of the hazards both within and outside the building, including potential risks such as fire, theft, vandalism, or natural disasters. You and your agent can select the necessary coverages by identifying these hazards.
“A great agent will do a walkthrough of your building and evaluate your hazards, inside and out,” says Carroll. “ They will look inside for things like fire hazards and hazardous processes and outside for things like uncontrolled natural growth or a hazardous adjacent business like a scrapyard next door.”
- Specialized Coverage Needs: Discuss exposures to your building that may require separate coverage endorsement. For example, flood insurance is typically not included in standard commercial building insurance policies. If you live on the coast or in locations prone to flooding, you must flood coverage separately.
- Replacement Cost Calculations: Calculate the cost to replace your building to ensure your insurance limit is adequate for a total loss. This value should represent the current cost of rebuilding the property entirely from scratch. It’s best to avoid underinsurance issues in the case of a catastrophe.
- Financial and Risk Tolerance Assessment: Assess your financial situation and risk tolerance when considering your insurance deductible. While higher deductibles will lower your insurance premium, they also increase your out-of-pocket costs in the event of a claim. Balance your deducible price with your ability to absorb potential losses when they appear.
“Somebody in an exceptional financial position may use a really high deductible because they can afford claims less than the cost of that deductible. A smaller business might be unable to consider this,” Carroll says. “That’s why working with your agent is crucial for figuring out the best approach for saving on premiums.”
Customizing Your Coverage
Addressing the above factors allows you to customize your commercial building insurance policy confidently. Understanding these steps gives you a head start in consulting with your insurance agent to find the right coverage options for you.
Once you have assessed your risks, you can tailor your coverage limits and deductibles to balance affordability with adequate protection for your business. It’s essential to ensure your coverage limits are enough to cover the replacement cost of your building and its contents in the event of a total loss. At the same time, choosing appropriate deductibles can help you manage your insurance premiums.
Twenty-nine percent of small businesses don’t carry any small business insurance. Staying on budget can be a stressful balancing act for businesses, but your insurance coverage should never take a back seat. Accidents are inevitable, and insurance helps keep your business afloat when the unexpected strikes.
Did You Know? Our loss control and claims services are backed by all Central Insurance business policies. Our loss control consultants are available to survey your operation and provide loss control recommendations, building valuation estimates, and safety training designed to reduce hazards to people and property.
Insuring Your Commercial Building with Central
Whether starting a new business or scaling an existing company, finding the right insurance is critical in protecting your people and assets. Working with a carrier that understands the challenges and opportunities for their insured’s business and industry makes all the difference.
Regardless of whether you’re looking to get exceptional commercial property coverage while renting a building for your business or if you’re a building owner looking for commercial building insurance, Central has you covered.
“Central Insurance has been writing Commercial Property Insurance since 1876,” Carroll says. “We employ experienced commercial underwriters who work with select, professional independent insurance agents to provide comprehensive insurance protection with best-in-class coverage forms.”
Contact a Central agent near you to learn more about the many types of Commercial Property insurance or to obtain an insurance quote.
