Commercial Property Insurance: Definition, Coverage, Costs

There are a variety of inherent risks associated with running a business—which is why it’s so important to have adequate small business insurance. Of course, the specific types of insurance you need will depend on what your business does, where you operate, your industry, and more. If you have physical business assets, however, you’ll certainly want to consider investing in commercial property insurance to protect those assets from damage, theft, and loss.

In this guide, we’ll break down everything you need to know about business property insurance—including what’s covered, how much it costs, and how to find the best provider for your small business.

Commercial property insurance, sometimes called business property insurance, protects physical assets and properties that belong to your business from damage, loss, and theft. Business property that’s typically covered under this type of insurance includes:

• Buildings, stores, and offices
• Furniture and equipment (including computers)
• Tools
• Inventory
• Important business documents
• Exterior signs, fences, and landscaping

In essence, all types of business property can be covered under this insurance policy, although it’s perhaps most often purchased to cover physical buildings.

The intent of commercial property insurance is to pay for the repair or restoration of your damaged, lost, or stolen property—as well as help your business resume normal operations as quickly as possible.

Overall, even though you can purchase commercial property insurance on its own, it’s often available as part of a business owner’s policy (BOP). A BOP bundles general liability insurance and property insurance (and sometimes business interruption insurance) into a single, more affordable policy. A standard commercial insurance policy also comes with several add-ons for specific types of property coverage.

On the whole, most business owners should at least consider commercial property insurance. In addition, if any of the following applies to your business, you’ll more than likely want to invest in this type of insurance:

• You own or lease office space
• You lease or rent equipment
• You manufacture a product
• You maintain inventory
• You own physical business assets of some value

This being said, although home-based and online businesses may not need as much commercial property insurance, they too should look into this type of coverage. After all, even though home-based business owners typically have some protection from their homeowner’s insurance policy, this coverage is often limited for business property.

Similarly, online business owners might think that commercial property insurance is unnecessary because they don’t own copious amounts of physical property. However, commercial property insurance has evolved along with the business world. These policies typically cover electronic data that might be hacked into or lost. Plus, computers and other electronic equipment are covered as well.

As we’ve mentioned, commercial property insurance protects your business’s property against a number of risks.

Overall, most commercial property insurance policies cover the following losses:

• Theft of business property (but employee theft is usually not covered)
• Accidental damage to business property from external incidents, such as fire
• Some natural disasters, particularly fire and storms
• Disrupted computer operations and data hacks
• Personal items left on business premises (most policies offer limited personal effects coverage)

Although this might seem like a short list, accidental damage covers a wide range of scenarios.

For example, commercial property insurance would cover you if a fire burns down a warehouse housing your supplies and inventory. You would also be covered if a storage rack collapses and damages computers and other equipment stored below. If a customer steals a product from your shelf or vandalizes your shop, that would be also be covered by commercial property insurance.

This being said, in any of these examples, you’d be able to file a claim with your insurance company and receive a payout to fund repairs or replacement of the property.

Although business property insurance covers a wide range of losses to your commercial property, it’s important to understand that there are also quite a few things that aren’t covered in a standard policy. Fortunately, it’s usually easy to buy add-on coverage when you need expanded protection.

These are some areas which standard commercial property insurance doesn’t typically cover:

• Flood and earthquake damage
• Theft by employees or business partners
• Damage or loss of commercial vehicles: If you have company vehicles, you should purchase a separate commercial auto insurance policy.
• Theft of cash and currency: Separate crime insurance is available in these instances of theft.
• Movable property: The standard commercial property policy covers stationary property that’s inside your business or within 100 to 1,000 feet of your business. If you regularly ship property, then you should consider adding inland marine coverage.
• Environmental damage: Such as pollution liability, oil spills, etc.
• Equipment breakdown: Commercial property insurance covers damages to your equipment from external causes, such as a fire. However, equipment damage due to a power surge, operator error, or other internal forces requires separate equipment breakdown insurance.
• Loss of income: Commercial property insurance pays for the repair or restoration of your damaged property. Typically, however, if your property damage results in a loss of revenue for a period of time, you’ll need business interruption insurance to cover lost income.
• Product defects: Manufacturing, defects, design defects, and marketing defects in business property fall under the umbrella of product liability insurance.

With all of this in mind, your business property insurance coverage will also vary based on the provider you work with. Therefore, the best way to get comprehensive coverage is to talk to your insurance broker or insurance company about the specifics of your business and what types of property you need to protect.

In many cases, you can supplement a standard commercial insurance policy with additional coverage.

Commercial property insurance costs most small business owners less than $1,000 per year, according to HowMuch.net.^[1]

Of course, the cost for your individual business will depend on a number of factors—including the structure of your insurance policy, the value of your business property, and the level of risk that your industry faces to damage, loss, and theft.

This being said, these are some of the factors that affect the cost of commercial property insurance:

• Business model: As you might expect, businesses with brick-and-mortar locations usually will pay more for property insurance than online businesses. The exception, however, is online businesses with very unique or expensive data.
• Industry: Some industries are inherently riskier than others and more prone to property damage. For instance, restaurants have the biggest exposure to fires.^[2]
• Location: A business’s specific location, such as an address in a high-crime area, can also impact the cost of commercial property insurance.
• Type of property: A business with fire sprinklers and high-quality, modern construction will get a discount on premiums.
• Neighboring businesses: What other businesses do can affect your own cost. For instance, if a neighboring business works with flammable materials, that will increase the cost of your own property insurance.

Additionally, as we mentioned above, the structure of your business property insurance policy will also impact your costs. Similar to small business health insurance, the more coverage you have, the higher your premiums will be.

Deductibles also matter. The deductible is the amount of money you pay out of pocket for each covered incident before the insurance company starts paying benefits. The higher your deductible, the more affordable your premiums will be.

Another big determinant of cost is the amount of property insurance coverage you purchase. Therefore, if you’re wondering how much commercial property insurance coverage you need, you should have coverage that’s at least equal to the value of the property that you’re looking to insure.

According to Mark Applegate, a Farmer’s Insurance agent,

“You always want to have enough insurance to protect yourself in case of a total loss. But some insurance policies may have an 80% or 90% coinsurance [requirement]. Coinsurance will impose a penalty on the insured if they fail to insure their contents to value.”

To explain, if an insurance policy requires 80% coinsurance, and your business property is valued at $1 million, you need to purchase at least $800,000 in coverage. If you don’t, the insurance company might not pay out your claims.

With this in mind, it’s important to note that not all insurance providers will measure property value the same way. You’ll want to read the fine print of your policy to see if it uses replacement or actual cash value. Here’s how replacement and actual cash value differ:^[3]

• Replacement value: Replacement value policies cover the cost of repairing or restoring the property to its original state (or as similar to original as possible). The policy will pay for labor or materials to fix or replace damaged, lost, or stolen property.
• Actual value: Actual value policies also pay to repair or restore damaged property, but deduct some of the payout to account for depreciation.

As an example, let’s say your computer is stolen, which you spent $1,000 to buy three years ago. Today, the computer is worth $700 after accounting for depreciation.

Under a replacement value insurance policy, you would receive up to $1,000 to buy the same or a very similar computer. An actual value policy would only reimburse you $700, which is the current market value of the computer.

When it comes down to it, replacement value commercial property insurance costs more, but it also provides more coverage. Ultimately, you’ll have to decide whether you want 100% coverage or whether you’re willing to make up some coverage gaps in the event of a claim by paying out of pocket.

There are many different insurance companies that provide commercial property insurance. However, shopping for commercial property insurance is a bit more complicated than other types of insurance. For starters, commercial property insurance often comes packaged with liability insurance as part of a business owner’s policy (BOP). Different insurers might include different types of coverage in a BOP.

To make things even more complex, insurers usually offer several different optional coverages that you can add on to standard commercial property insurance. These add-ons are called endorsements and redefine what your policy covers.

As an example, you might be able to add an endorsement to cover something like a flood or earthquake, that isn’t typically covered under the existing policy.

Overall, in order to find the best commercial property insurance for your business, you’ll want to assess your business assets in advance and determine what types of property coverage are essential for you.

Note that if you’re a home-based business owner, you should start by contacting the provider of your homeowners’ insurance. You might find that you have enough business property coverage through your homeowner’s policy.

This being said, any insurer that you buy business property insurance from should be A-rated or better by A.M. Best. A.M. Best rates the financial strength of insurance companies, which impacts whether they’ll be able to pay your claims.

With this in mind, here are some top providers of commercial property insurance that you might consider:

Hiscox is one of the largest A-rated insurance companies in the world and has the resources and expertise to deliver insurance for virtually any small business. They sell commercial property insurance on its own, and BOPs which combine property and liability insurance.

You can get a quote and buy the insurance online, or work with a Hiscox insurance agent. As a large insurer with access to multiple markets, Hiscox rates are frequently some of the most competitive in the industry.

What we like most about Hiscox commercial property insurance is that it comes built-in with good basic coverage. For instance, every policy (at a minimum) includes $10,000 of stationary equipment insurance, $10,000 of movable equipment insurance, and $2,500 of personal effects insurance.

Lost income insurance for up to 12 months is also included, which helps your business keep up with expenses as you’re waiting for your essential property to be repaired or replaced. This a differentiator from other insurers that charge separately for lost income coverage.

Rather than going directly to an insurance company, some small business owners prefer to shop around for the most comprehensive coverage and the best rate from several insurers. Insurance comparison platform CoverWallet makes shopping around easy. You can choose from a BOP package or stand-alone commercial property insurance.

After providing some financial information about your business in their online questionnaire, you’ll be able to compare quotes from multiple top-rated business insurance companies. Eventually, you can purchase the policy that you like most online.

When requesting a quote on CoverWallet’s website, be prepared to provide detailed information about your business’s product or services, revenues, any buildings or real estate that you occupy, and any risk exposure that you have.

Once you buy the insurance, you can easily manage your policy from your CoverWallet account. You can view your policy, see claims history, plan for upcoming premium payments, and request insurer certificates online.

Insureon is an insurance comparison site similar to CoverWallet. According to Insureon, most of their small business customers opt for a BOP that combines liability and property insurance. This is a good way to limit costs and offers more protection than each one on its own. You can specify whether you need business interruption insurance, inland marine coverage, or other optional coverages.

Like CoverWallet, Insureon partners with some of the top A-rated insurance companies for providing business insurance. The online questionnaire on Insureon is longer and not as user-friendly as Cover Wallet’s—however, the end result is the same.

You can compare quotes from multiple insurance companies and choose a policy that’s best suited for your business. They have policies starting at $21 per month.

The Hartford is an A+ rated insurance company that provides commercial property insurance and other types of business insurance. Although you can get a quote for business insurance on their website, The Hartford primarily operates through agents, and the best way to get a policy is by working with a local small business agent.

Commercial property insurance from The Hartford provides broad, basic coverage. The agents can give you personalized guidance as to whether some of the optional endorsements can help you.

Where The Hartford really stands out, however, is in terms of claims prevention and handling. Their risk team will help you identify exposure areas and ways to avoid loss, damage, and theft.

Plus, The Hartford’s claims representatives receive specialized training about business-related losses and natural disasters that impact businesses. This is good news in the stressful aftermath of filing an insurance claim.

Liberty Mutual is one final insurer that we recommend for businesses in need of commercial property insurance. It’s important to note, however, that this isn’t a good option for business owners that want a quick online experience—the only way to purchase a Liberty Mutual business insurance policy is through an independent agent or broker.

If you’re okay going through an agent, Liberty Mutual provides flexible insurance coverage for businesses of different sizes and different industries. They offer separate liability and business property insurance or a bundled BOP for small and medium-sized businesses.

You can elect to add loss of income coverage, inland marine coverage, or equipment breakdown insurance. Businesses in the food processing, real estate, and hotel industries can get industry-specific property coverage through Liberty Mutual.

At the end of the day, commercial property insurance is essential for almost any small business, whether you have a physical business location or run an online business. This insurance protects the assets that are core to your company.

As you search for the best insurance policy for your needs, you can follow these tips to ensure that you strike a balance between sufficient coverage and cost savings:

• Try a BOP that bundles liability and property insurance in one affordable package.
• Accurately estimate your business revenues and other financial information when getting quotes.
• Go with an A-or-higher-rated insurer to ensure that your claims will be paid in full.
• Don’t purchase unnecessary add-on coverage.
• Understand your deductible, any coinsurance requirements, your monthly premium, and claims filing procedures.

Moreover, if you have any questions throughout the process, you shouldn’t hesitate to ask the insurance company or agent, as well as talk to a trusted business advisor for assistance.