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How does commercial property coverage work?

Commercial property insurance coverage varies from policy to policy, but commercial property coverage is classified by the type of event leading to a loss and by what things are insured.

The most basic commercial property insurance covers any losses caused by fires or explosions, theft, vandalism and damage from vehicles or airplanes. Additional coverage (also known as endorsements) can provide additional protection for damage such as, broken glass caused by an earthquake.

The key items insured in commercial property insurance includes the following:

  • Your building
  • Office equipment
  • Inventory
  • Outdoor items

It is very important for you to take an inventory of your business before you apply for commercial property insurance. This helps you decide what property you want to insure and its overall replacement value.

The property you might want to insure can include:

  • The building that houses your business
  • All office equipment (owned or leased)
  • Important company documents
  • Manufacturing or processing equipment
  • Inventory
  • Fence and landscaping
  • Signs and satellite dishes

How do you want things covered in your commercial property insurance?

Commercial property insurance plans pay for losses based on the replacement cost of each item or its actual cash value.

  • Replacement cost: Replacement cost (RC) is the amount necessary to repair or rebuild the property on the same premises, with comparable materials and quality, without deducting any amount for depreciation.
  • Actual cash value: Actual cash value (ACV) is the cost to replace it with new property of quality, minus depreciation.

Generally, premiums for policies covering property insured on an ACV basis are lower because the limits include the depreciated value. This amount might not be enough if you elect to insure the property on a RC basis.

Commercial General Liability (CGL) Insurance

Commercial General Liability insurance (CGL) protects a business from any third party legal lawsuits that threaten the company with financial loss.

CGL insurance protects companies and small business owners from:

  • Claims of injury
  • Property damage claims
  • Claims of false of fraud
  • Claims of libel or slander
  • Claims of negligence

Premises or operations coverages protect businesses in the event of someone filing a claim due to an injury. This type of general liability insurance is only for third party claims. When an employee files an injury claim, it comes under worker’s compensation insurance and not CGL.

CGL insurance also covers businesses if individuals file a claim for any damages that take place off the premises. For example, general liability insurance will protect your assets if someone is injured while using a product with faulty part, made in your factory.

Excess liability and umbrella coverage provides small businesses an extra assurance of protection if they are sued on multiple fronts or need to pay any damages beyond the limitations of a standard CGL insurance policy.

CGL insurance also protects employees acting in an official capacity. It covers your corporation’s executive officers, stockholders and directors when they are acting on the behalf of your business. In joint ventures and partnerships, it covers the official actions of partners, members and their spouses.

Most importantly, CGL insurance allows a business to survive as an entity. Please note that some companies may present a higher hazard liability exposure that requires specialized underwriting.

Frequently asked questions about commercial property insurance

What is commercial property insurance?

Commercial property insurance protects your commercial property and its content from perils such as theft, fires and natural disasters. Commercial property insurance coverage can include building coverage, contents coverage, stock coverage, and equipment coverage. You can also pair commercial property coverage with business interruption coverage, to protect you from any financial losses that may stem from a shut down due to damages.

What is the difference between business liability insurance & commercial property insurance?

Commercial property insurance protects your business's physical assets, including its building, furniture, equipment and inventory from damages caused by:

  • Fire
  • Hail
  • Lightning
  • Windstorms
  • Vandalism
  • Theft
  • Explosions

For example, if your property is affected by a municipal gas leak, your commercial property insurance can help you cover the cost of repairs, making it easy for you to return to business.

Commercial property insurance may cover the damage to your property, but what if your business causes damage to your neighbor’s property?

If your company operations causes the damage, you can be liable for it. This is why it is vital for some businesses to get business liability insurance along with commercial property insurance.

Business liability insurance helps you address the responsibilities you have to the people who come in contact with your business and its operations. These people include:

  • Customers
  • Partners
  • Suppliers
  • Vendors
  • Employees

How much does commercial property insurance cost?

The cost of your commercial property insurance policy will depend on the size and nature of your business. A small business can pay as low as $425 a year, while a mid-sized company can pay anything from $1800 to $10,000.

How is the premium for commercial property insurance calculated?

Your commercial property insurance premium depends on the following factors:

  • Location: The location of your business can have a huge impact on the premiums you pay for your commercial property insurance. If your area has a high prevalence of break-ins or vandalism, your premium may be higher, than if you operate from an area where such instances are rare.
  • Replacement cost: Your insurance premium also depends on the overall replacement cost. The cost to replace a property is determined by its size, composition and contents. If you have a high value premises and expensive equipment, your premiums may be significantly higher. If you do any major renovations in your property, this can also affect your premium.
  • The age of the building: As your building gets older, the likelihood of a loss increases and your insurance premium will reflect that. A newer commercial building will have a lower insurance premium. If you operate out of an older building, you can reduce your premium costs by doing necessary improvements and renovations. Insurance companies prefer your roof to be no older than 20 years.
  • Electrical work and plumbing: Water damage is a leading cause of insurance claims in Canada. The type of plumbing in your property is a key factor in determining your property insurance premium rate. Older buildings have galvanized or lead piping installed. This can cause frequent plumbing issues. Similarly, older properties may also have older electrical work in place that may lead to fuses and potential fires. Older types of wiring can be a red flag for many insurance companies, so keep that in mind while applying for commercial property insurance.
  • The type of coverage you purchase: The higher the coverage you choose, the higher your commercial property insurance premium will be. Usually, you’ll find an option for “Basic” and “More Perils” coverage. A comprehensive commercial property policy will cover your building and all its contents; with add-ons for damages caused by unfortunate situations such as earthquakes and sewage problems etc.

Benefits of commercial property insurance

If you’re wondering why you may need commercial property insurance, here are the amazing benefits that come with it.

  • Protection when disaster strikes: Disasters can strike a business anytime and lead to huge losses. When natural disasters happen they can wreak serious havoc on business operations and increase your costs. Having commercial property insurance ensures that your business can withstand such disasters and bounce back quickly. Remember to check with your insurance broker to see just what your commercial property insurance policy will cover.
  • Repairs and replacements: Commercial property insurance can help you deal with damage repairs and replacements costs. For example, if your retail business suffers from a fire, your insurance can help you repair your building and replace the inventory/equipment destroyed.
  • Business interruptions: Business interruptions can happen when you suffer from property damages. If your business is forced to close after an insured event, you can receive funds to help your business survive and pay your bills and employees. Some policies may even help with temporary relocation for your business to get back up. This coverage is often an add-on to a commercial property insurance policy.
  • Financial security: Any major repairs or destruction of inventory/equipment can cripple a business. With commercial property insurance, you’ll have a chance of quickly recovering without having to worry about depleting cash reserves. Most importantly, you’ll have peace of mind!

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