It’s easy to get dizzy going through the list of different types of commercial insurance available to businesses. From inland marine to cyber coverage, there are countless plans for various risks. So here’s a basic commercial insurance guide to help you protect your commercial property with the right insurance.
Commercial Property Insurance Basics
A common form of commercial insurance for entrepreneurs who own buildings is commercial property insurance. It covers the structure of the building along with its completed additions, indoor and outdoor fixtures, and permanently installed appliances.
Another component of commercial property insurance is business personal property (BPP), which covers the building contents. Some of the many items this coverage includes are furniture, equipment, and leased personal property. Most of these policies limit coverage to items inside or within 100 feet of the building.
Commercial property insurance essentially pays for damages to the property of others, including when you rent out rooms to tenants that you own and control. The policy’s causes of loss form defines what is and isn’t covered based on risks to the insured. This form is found on the declarations of insurance page.
Different Types of Damages
All types of property insurance are associated with perils, such as natural disasters that can affect the structure’s condition. A commercial policy typically protects the property in the event of severe weather. The three main options of a commercial plan are special, basic, and broad. Certain catastrophes such as earthquakes often require separate coverage from the basic plan.
While the clauses stated on a causes of loss form defines the items covered, a special causes of loss form covers everything in a building unless excluded. In contrast, basic or broad forms indicate everything is excluded from coverage unless listed. The special option is often considered an “all-risk” blanket plan because it covers all direct physical damage except for stated exclusions.
Here’s a look at the differences between the three options:
Special Cause of Loss Form – Everything is covered except for exclusions, giving the policyholder a much wider scope of coverage that may include various nuances not covered in other plans.
Basic Cause of Loss Form – Typical disasters that are covered include storms, fire, lightning, explosions, vandalism, and damage from a vehicle crashing on your commercial property.
Broad Cause of Loss Form – Damage from falling objects is covered, along with water damage and collapse from excessive snow.
While insurance policies often fit into the special, basic and broad categories, some forms might be proprietary. An “All Risk Manuscript Form” is an example of a form that might be unique for one particular insurer. It’s usually easier to avoid non-standardized policies or work closely with an insurance professional while considering them.
Exclusions Often Found in Commercial Plans
Insurance companies generally base coverage and rates on risks. In the business world, there are plenty more risks to consider than what typical homeowners worry about. Certain risks associated with massive damage are categorized as exclusions separate from more common types of damage. Examples of exclusions might be flooding, seismic activity, acts of terror, and nuclear disaster.
These extreme forms of damage involve high costs to pay for repair and replacement. You can still get coverage for exclusions as add-ons, but they usually boost your monthly premium.
Adding and Customizing Coverage
Getting a commercial insurance plan usually involves a certain degree of customization since every business is unique. There are several add-ons to think about, such as coverage for business income. This coverage pays for employee payroll and regular expenses when your business ceases to operate temporarily. It’s helpful during periods of relocation or shutdown due to a disaster.
Certain types of expensive machinery such as elevators and manufacturing equipment may need extra protection. Specialized coverage may further be needed to protect these against explosions and electrical surges.
Owners of old commercial buildings should think about getting up-to-date with local ordinance codes to avoid fines. If such a building suffers a disaster, the policy may only cover the costs of restoring the building to its condition before the perilous event. You will need to pay the additional costs for upgrading out of pocket unless you purchase extended ordinance and law coverage.
Keep in mind that if your commercial building is not up to code and experiences damage, the local government can force you to demolish it. The good news is an ordinance and law coverage will pay for the demolition and replacement. In some cases, old building owners may consider an actual cash value (ACV) plan that plays replacement costs minus depreciation. Another option is coverage for functional replacement cost valuation when an old building is made of obsolete materials.
Understanding Coverage Limits
The amount of money you receive from an insurance claim depends on the coverage limits of your policy. You can predetermine limits to the amount of coverage your insurer potentially pays. If you have a policy, for example, with coverage limits of $1 million, that means the insurance company pays up to $1 million in damages. After that, you must pay from your own pocket.
Another factor affecting payouts is the deductible amount. If your deductible is $500, it means you pay the first $500 worth of damage, and then the insurer pays the remaining amount up to the coverage limits. Thus, deductibles can be adjusted to lower monthly premium costs.
Use this commercial insurance guide as a starting point for making sense out of the complex insurance world. Speaking with an insurance professional can help you avoid paying coinsurance penalties. Contact us at Udell Family Insurance for more information on getting coverage that fits your unique business.