Commercial Property Insurance

What it covers

The building, if you own it, including permanently installed systems and fixtures. Business personal property — equipment, furniture, inventory, machinery, tools and supplies. Tenant improvements and betterments, which is the part most leased-space businesses forget. The flooring, partition walls, electrical work and built-in counters you paid for are yours to insure, not the landlord's. Business income and extra expense, usually written alongside, which keeps money coming in while you are closed. More on business income.

Replacement cost versus actual cash value

Commercial equipment depreciates on paper far faster than it does in usefulness. A ten-year-old mixer, lathe or lift may have little used value and still cost a great deal to replace with a working equivalent.

Under actual cash value you fund that gap at exactly the moment cash is tight. For most operating businesses replacement cost is worth the premium difference — and the basis is on your declarations page, frequently not what the owner assumed.

Setting the limit

Empty the business into the parking lot. What does it cost to buy it all again tomorrow? Computers, furniture, shelving, inventory, machinery, signage, point-of-sale equipment, security systems and every improvement to the space.

Most owners land at two to four times their first guess. More on setting property limits.

Coinsurance: the clause that reduces claims

Most commercial property policies carry a coinsurance requirement — commonly 80, 90 or 100 percent. Insure the property for less than that share of its value and the policy reduces even a partial claim proportionally.

This is why an outdated limit hurts twice: it caps what you can collect, and it can cut what you collect on a loss well below the limit. Review values annually, particularly after construction costs move.

What property coverage does not do

It is tied to the premises described on the policy. Tools, equipment and materials that travel to job sites need inland marine coverage.

Flood and earth movement are excluded and need separate coverage. Equipment breakdown — a boiler, compressor or electrical failure — is a separate coverage too, and worth adding for any business dependent on mechanical equipment.

Common questions

Do I need property coverage if I lease my space?

Usually yes. You still own your equipment, inventory and the improvements you made to the space, and your lease almost certainly requires liability coverage alongside it.

What is coinsurance and why does it matter?

A clause requiring you to insure the property to a stated percentage of its value, commonly 80 to 100 percent. Insure for less and the policy reduces claims proportionally, including partial ones.

Should I carry replacement cost or actual cash value?

For most operating businesses, replacement cost. Equipment depreciates on paper much faster than in usefulness, and an ACV settlement leaves a gap at the worst time.

Are my tools covered at a job site?

Generally not under commercial property, which is tied to your premises. Tools away from the location need inland marine coverage.

Is equipment breakdown included?

Usually not by default. It is a separate coverage, and worth adding for any business that depends on mechanical or electrical equipment.