Types of Property Insurance Coverage for Businesses
Many coverages can be added or removed as needed
Commercial property insurance protects your business from financial losses resulting from the destruction of or damage to its physical assets. It's a broad category that includes many types of coverages. What you might need or benefit from depends on the type of business you engage in and some other factors.
Direct Damage Property Insurance
Direct damage coverage is what most people think of when they hear the words "property insurance." This type of insurance covers loss or damage to physical property by a covered cause of loss.
Catastrophic events are not always automatically covered, such as those resulting from a natural disaster like a tornado or hurricane, so check with your provider. Separate insurance might also be necessary to cover cleanup and debris removal from property after a natural disaster, even if your insurance covers rebuilding or replacement.
Purchasing Direct Damage Coverage
Most businesses obtain direct damage coverage by purchasing a commercial property policy that covers loss or damage to business-owned property, such as buildings, production machinery, office equipment, furniture, and stock. It also provides some coverage for loss or damage to property owned by someone else that a company uses in its business, such as a copy machine that's leased from an office supply store.
Property policies are usually flexible. You can add, remove, or amend coverages as needed through a series of endorsements.
Commercial property coverage can be provided as a separate policy or in combination with other coverages under a package policy. It can also often be purchased under a businessowners' policy (BOP), a multiline policy designed for small businesses.
Most homeowners' policies do not cover the equipment of home-based businesses, so you'll most likely need a commercial policy as well if you work out of your home or store products or equipment there.
Time Element Coverages
Another category of commercial property insurance consists of time element coverages. Losses are tied to the period of time it takes to repair damaged property. Losses grow as the time required to make repairs increases.
- Business income coverage covers income your company loses when your business is forced to shut down due to damage to physical property caused by a covered peril.
- Extra expense coverage covers expenses you might incur to avoid or minimize a shutdown of your business after your property has sustained a physical loss.
- Leasehold interest coverage covers a financial loss you sustain when your lease is cancelled due to direct physical loss or damage to property at your premises.
Time element coverages are usually written in conjunction with direct damage insurance. Any of these coverages can be added to a commercial property policy.
Inland Marine Insurance
Commercial property and BOP policies are intended to cover property situated at your premises. These policies afford little coverage for property located elsewhere, but many businesses own equipment that they use at off-site locations.
For example, most tree trimming companies own ladders, saws, wood chippers, and other equipment that they transport to customers' premises. Likewise, many construction companies own equipment like bulldozers, loaders, and scrapers that they use at job sites.
Inland marine insurance is designed to cover equipment, machinery, or other property that's transported over land. They're often referred to as floaters because inland marine policies cover movable property. This type of insurance differs from ocean marine insurance, which covers ships and cargo traveling on the high seas.
There are many types of inland marine coverages. Most can be added to a commercial property or package policy via a separate form or endorsement.
- As the name suggests, fine arts coverage covers loss or damage to statuary, paintings, carvings, and other valuable works of art owned by businesses.
- Contractors equipment coverage addresses loss or damage to tools, machinery, or other mobile equipment owned or used by contractors.
- Accounts receivable coverage protects your business against losses caused by your inability to collect sums owed to you by customers due to damage to your accounts receivable records.
- Inland transit coverage covers loss or damage to goods transported over land within the United States. Most goods covered by inland transit policies are shipped by rail, truck, or a combination of the two.
- Electronic data processing (EDP) coverage protects your business from loss or damage to your computers, data, or storage media. EDP coverage is important if your company is heavily dependent on computers to carry out its day-to-day operations.
- You can also purchase cyber liability insurance against damages caused by your own electronic data or website, such as if your system is hacked.
- An installation floater covers damage to property, such as a boiler, that you intend to install at a customer's location. Coverage applies while the property is in transit to or from the job site, and while it is awaiting installation at the customer's location.
- An exhibition floater covers damage to property being displayed at a trade show or exhibition. It also covers the property while in transit to or from the exhibition site.
You'll want full insurance on your company's vehicles if it owns and operates any, including comprehensive, collision, and liability coverage. Commercial auto insurance can cover your employees' liability as well with the right policy, even when they're driving their own vehicles for job-related purposes.
Some other coverages to consider include medical payments coverage and uninsured/underinsured motorist coverage.
Builders Risk Insurance
Property and BOP policies are designed to cover completed buildings. They provide little or no coverage for new buildings that are under construction. You'll want to purchase builders risk insurance to insure buildings during the construction process.
Builders risk is a type of inland marine insurance. Unlike most inland marine coverages, however, builders risk is generally written by itself. A builders risk policy begins when construction starts and ends when the project is completed.
The policy is typically purchased by the general contractor or project owner. It protects all parties involved in the project against physical damage to insured property caused by a covered peril. Insured parties typically include the owner, the general contractor, and all subcontractors.
Theft is a covered peril under most commercial property policies, but most policies exclude thefts committed by employees. They also exclude loss or damage to money or securities by any cause.
Businesses can purchase crime insurance to protect themselves against these other losses. Crime coverage can be written alone or added to a package policy.
Employee theft coverage protects businesses against the theft of money, securities, and other property by employees. Computer fraud coverage protects businesses against theft of property by a thief who commits the crime using a computer, and money and securities coverage covers the loss of money and securities if the loss takes place inside your premises or a banking institution, or outside your premises.