Business Property Insurance: What It Is, Which Businesses Need It

This insurance can make sense for companies that own or rent property or have home-based businesses.
Hillary CrawfordAug 9, 2021

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Business property insurance, also known as commercial property insurance, protects a company’s properties and on-site physical assets against damage due to certain causes of loss. This type of business insurance can help minimize the financial impact on a business following certain accidents, weather events or other hazards.

More often than not, business property insurance is bought as part of a business owners policy, or BOP, which includes general liability insurance and business interruption insurance.

Which businesses need property insurance?

Businesses with any physical assets of value should compare property insurance policies. A physical asset of value doesn’t have to be a building; it could be expensive computer equipment or other items that would be costly to replace. Here are some examples of businesses that should consider this type of insurance:

  • Businesses that operate out of buildings they own.

  • Businesses that lease or rent space: Depending on the lease agreement, a business owner might be liable in case of a fire or natural disaster. A landlord might require the renter to have business property insurance.

  • Businesses based from home: While homeowners insurance might cover some expenses, it generally falls short for business owners with more than $2,500 in business equipment.

What does business property insurance cover?

A business property insurance policy generally protects physical assets such as work equipment, furniture, computers, inventory, others’ belongings within the workplace, documents and outdoor signs attached to the building. The policy’s causes of loss forms define which events these assets will be covered against. Here are the three main forms, along with the types of damages they cover.

• Fire. • Lightning. • Explosions. • Smoke. • Windstorm. • Hail. • Riots or civil commotion. • Aircrafts or vehicles crashing into the property. • Vandalism. • Sprinkler leakage. • Sinkhole collapse. • Volcanic action. • Glass breakage due to one of the above perils.

• Falling objects. • Weight of snow, ice or sleet. • Water damage from leaking appliances, but not from sump overflow. • Building collapse.

Provides all-around coverage minus causes of loss intentionally excluded in the policy.

Nerdy tip: While business property insurance protects your physical assets if they are located within or near the insured building, it doesn't cover losses that occur off the premises. Consider inland marine insurance if your business requires traveling by land with business assets.

What does business property insurance exclude?

Business property insurance generally doesn't cover the following:

  • Burglary: Most policies cover damage due to vandalism, but not all cover loss due to theft.

  • Flood and earthquake damage.

  • Cybercrime and computer fraud.

  • Damage to vehicles.

  • Losses in transit. Commercial property insurance typically covers losses on or near the insured company's location, not losses that occur in transit or off-site.

  • Loss due to employee dishonesty: Business owners must purchase a separate employee dishonesty policy or fidelity bond to protect against these losses.

  • Income loss: If a business closes due to damage, it could lose significant income. Business property insurance doesn't cover this, but business income insurance — often included in a BOP — does.

How much does it cost?

The median business property insurance costs $63 per month for plans with a $1,000 deductible and $60,000 policy limit, according to Insureon, a small-business insurance marketplace. This means the business owner would have to pay $1,000 out of pocket for damages before insurance kicks in. At that point, the insurance company would pay no more than $60,000 in claim settlements.

Businesses generally pay monthly premiums to insure property, unless they choose to pay a year’s worth of premiums at once. The costs vary from company to company. Policy prices are based on a wide variety of factors, including but not limited to:

  • The value of the building or property: The more a building is worth, the higher the premium.

  • The value of physical assets associated with the business: A business with few physical assets of value will tend to have a lower monthly premium.

  • Level of coverage: If a business needs additional coverage to protect it from earthquakes, this will generate a higher premium. The same goes for if a business owner selects a special causes of loss form instead of a basic or broad one.

  • Actual cash value coverage or replacement cost coverage: ACV insurance covers the cost of replacing the lost or damaged property with something of comparable quality, minus depreciation for age, as well as wear and tear. RC coverage, meanwhile, doesn’t factor in depreciation and reimburses the business owner for the entire cost of replacing the lost or damaged item. Premiums for ACV insurance tend to be cheaper because they offer less coverage.

  • Building construction: Newer buildings built with fire-resistant materials and up-to-date electrical systems will be less expensive to insure than older buildings without these features.

  • Industry: Manufacturing businesses carry a higher level of risk for property damage than office-based businesses, for example, and will generate a higher premium.

  • Location: Your rate can depend on your location's crime rates, proximity to a fire station and fire hydrant and frequency of dangerous weather events.

  • Security: If the business has a security system, premiums will be lower.

Where do I get business property coverage?

Major business property insurance carriers include Chubb, Travelers, Liberty Mutual, American International Group (AIG), Berkshire Hathaway, CNA Financial, Hartford Financial Services and Nationwide. Call providers for quotes if you're interested in purchasing insurance.