When You Need Commercial Property Insurance

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Too many people think that individual personal insurance covers everything they do. However, this is not the case. If you have personal auto insurance, the insurer only covers accidents when you’re driving your vehicle for personal reasons. Personal insurance will not cover accidents when you are driving, paying customers who hired you via a ride-sharing app or making deliveries for your small business. You need commercial auto insurance to cover work vehicles and driving your own car for business reasons. And if you are in these situations, you need that insurance now because you could lose your personal auto insurance because you did not tell them you were driving for work – a higher risk category than the one you were paying for. Commercial property insurance is needed for the same reasons.

Let us look at some of the circumstances that should trigger the purchase of commercial property insurance.

You Start Your Own Business on Leased Premises

Commercial property insurance is often understood to be needed in these cases. Only commercial property insurance will insure the building and its contents when lost from a covered cause like fire and explosions. Commercial insurance policies typically cover losses from theft or vandalism. Depending on the insurance policy, it may cover loss of income because your business was destroyed or the increase in expenses because of property damage. That latter case would be when you had to relocate your business to a new location due to a fire or flood. The insurance could kick in money toward the rent for the new location and moving expenses while paying toward the restoration of the original location. Commercial insurance typically will not cover property damage from floods unless you pay for a separate rider.

Do not assume that the landlord’s property insurance covers your business because it does not. The property owner’s property insurance may pay to rebuild the building if it burns down. It will not pay for your lost inventory, furniture, computers, records and other essentials. This is similar to how renters should have insurance to cover their personal property losses if the apartment building burns down. The landlord’s property insurance may pay for the rebuilding, but it will not pay the tenant’s lost possessions. And it certainly will not pay for their rent when they move to a new location. It is your stuff, and it is your responsibility.

You Start Your Own Business in Your Home

Commercial property insurance should be on your to do list when you start a home based business. Your homeowner’s insurance is intended to cover losses like your furniture, your personal possessions and damage to your home. It will not cover the inventory you keep in the home office or garage and sell to clients, whether you sell them at trade shows or online. Homeowners insurance will not cover office equipment, accounting records or manufacturing equipment kept in a garage or shed.

This does not mean that every home based business requires commercial property insurance. If you essentially run a consulting business, you probably do not need this, though liability insurance is a must. If you have some inventory, but you can easily replace it out of your own pocket, you may not need commercial property insurance. If you are selling products online but do not actually have the inventory on hand, you do not need commercial property insurance.

You Buy a Building to House Your New Business

Commercial property insurance can be seen as the business equivalent of homeowner’s insurance. Property insurance covers your building in case of natural disasters like theft, fire, floods, hail storms and others depending on the policy. If you are buying a commercial building, you need to secure insurance. It may even be required by the mortgage issuer. Depending on the policy, it will typically cover equipment, inventory, signs, the structure itself, and even your fences and landscaping. Like all insurance, the less you choose to cover, the lower your overall insurance rates. The rates you pay will be based on the perceived risk of losses your business faces. If you are regularly getting robbed, expect to pay a higher insurance premium or be required to implement theft deterrents. The need for insurance goes up with the cost of replacing everything that is lost. If you have expensive machine tools, manufacturing equipment or raw materials, you want to have full coverage. In these cases, you will need replacement cost coverage. Replacement cost covers the cost to repair, replace or rebuild the property with similar materials and of the same quantity. Actual cash value coverage means you will be given the money to replace the property with similar quality items minus depreciation. Yet the age of the equipment can count against you in another way; if the equipment is hard to replace or fix, you will pay higher rates.

If your injection molding machines or 3D printers are a few years old, this means you will get enough money to buy used equipment instead of new. If your materials or equipment is subject to heavy depreciation, replacement cost is essential. Conversely, if your business is mostly service-based, you could survive replacing your furniture with cheaper stuff and continue operations.

Does Commercial Property Insurance Eliminate the Need for Liability Insurance?

The answer is no. They will cover property damage if vandals steal things, but it will not pay out if one of your employees assaults a customer. This insurance may cover the cost to replace inventory when lost in a natural disaster, but it doesn’t apply if you’re sued for selling defective products. Commercial property insurance does not address lawsuits for poorly provided services or allegations of breach of contract. Commercial property insurance may cover the losses of company vehicles if lost in a fire on the premises, but it will not kick in your company is sued for someone who says they were hit by one of your drivers. Nor does make up for worker’s compensation insurance. It will, however, kick in if your employees are doing renovations and accidentally break down the wall into the next retail store, damaging their property. They may cover the losses of servers if your building is damaged, but it does not apply if you suffer serious harm from a malware attack. It certainly will not cover your financial liability for the loss of customer data.

As a summary, whether you are starting a small business in your garage or expanding into a commercial building, you need to secure commercial property insurance. It may be legally mandated in some cases, but it is always an investment in your business, ensuring you do not go out of business after a disaster or disruption.

 

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