Types of Property Coverage
Commercial property insurance protects your business from financial losses resulting from the loss or damage to physical assets. It is is a broad category that includes many types of coverage.
Direct Damage Property Insurance
Direct damage coverage is what most people think of when they hear the words "property insurance." As its name suggests, direct damage insurance covers loss or damage to physical property by a covered cause of loss. Most businesses obtain direct damage coverage by purchasing a commercial property policy. The latter covers loss or damage to business-owned property like 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.
An example is a copy machine leased from an office supply store.
Many insurers issue commercial property policies using standard ISO forms. Others use forms they have developed themselves. In either case, property policies are flexible. Coverages can be added, removed or amended as needed via endorsements.
Commercial property coverage can be provided as a separate policy or in combination with other coverages, such as general liability, under a package policy. It may also be purchased under a businessowners policy (BOP), a multiline policy designed for small businesses.
Time Element Coverages
Another category of commercial property insurance consists of time element coverages. Under time element coverages, losses are tied to the length of time it takes to repair damaged property. Losses grow as the time required to make repairs increases. Here are some examples of time element insurance:
- 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 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 the coverages described above may 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. Yet, many businesses own equipment that they use at an off-site location. For example, most tree trimming companies own ladders, saws, wood chippers, and other equipment that they transport to customers' locations. 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 transported over land. Because inland marine policies cover movable property, they are often referred to as floaters. Inland marine insurance differs from ocean marine insurance, which covers ships and cargo traveling on the high seas.
There are many types of inland marine coverages. Some are described below. Most inland marine coverages can be added to a commercial property or package policy via a separate form or endorsement.
- Fine Arts Coverage. Covers loss or damage to statuary, paintings, carvings, and other valuable works of art owned by businesses
- Contractors Equipment Coverage Covers 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.
- 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.
- 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.
- 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.
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. To insure buildings in the course of construction, you'll need to purchase builders risk insurance.
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 usually purchased by the general contractor or project owner. It protects all parties involved in a 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. However, most policies exclude thefts committed by employees. They also exclude loss or damage to money or securities by any cause. To protect themselves against thefts committed by employees or losses involving money and securities, businesses may purchase crime insurance. Crime coverage is a type of property insurance.
Crime insurance may be written alone or added to a package policy. There are many types of crime coverages. Here are some examples:
- Employee Theft Coverage. Protects businesses against 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
- 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