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Written By Joel Kranc

Contributing writer

Updated Aug. 30, 2024

What is commercial property Insurance?

Insurance, as a means to protect ourselves and our assets, can be used in a variety of ways. For personal reasons we may want to protect our homes (usually our most expensive asset) from damage, theft, fire etc. We may also want to protect ourselves from lawsuits in case we cause damage, or someone is damaged on our property. The same logic can be applied to car insurance.

But what if you own other assets for your business, for example? Or through investment? If you are an owner in commercial property, you’d want similar protections that will prevent loss and/or damage. This type of property can include income or real estate investments, office towers, and buildings that are meant to generate a profit from capital gains or rental income, as opposed to your home.

Commercial property insurance is used to cover commercial property from similar perils that may occur to your home – like theft, fire, and natural disasters.


Coverage size and Liability limits

  • Coverage size: Commercial property insurance typically offers higher coverage limits compared to personal property insurance due to the higher value of commercial assets. Coverage can range from hundreds of thousands to millions of dollars, depending on the property and business needs.
  • Liability limits: Liability limits for commercial property insurance are generally higher than those for personal property insurance. They can depend on the policy and the specific risks associated with the business.
  • Premium size: The cost of commercial property insurance varies widely based on factors such as the location, size, and condition of the property, as well as the coverage limits.

Comparison with personal property insurance

  • Coverage comparison: Commercial property insurance usually provides more extensive coverage than personal property insurance. This is due to the higher value and complexity of commercial assets, as well as the greater risks associated with business operations.

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

What is not covered by commercial property insurance

While commercial property insurance can help reduce risks or replacement costs on certain things, there are reasons that you would not be covered as well. For example:

  • Wear and Tear – This is a deterioration of your property or assets from normal use.
  • Neglect – Not maintaining assets is also an area that would not be covered.
  • High Level Risks - This could include things like pollution, damage caused by fungi or spores, and on the extreme side wars or nuclear incidents.
  • Natural Disasters – Many polices don’t include certain natural disasters as part of the standard policy.
  • Vacancy – Many times if a commercial property is vacant for more than 60 days coverage could be limited or voided.
  • Building Codes – You must be in accordance with the law in terms of building codes to maintain full coverage.

How commercial property insurance can protect you and your business?

We all try to work and live in a collaborative manner that is fair and equitable. But there are some bad apples that, for better or worse, we must protect ourselves from.

Let’s say you own a retail business with a warehouse full of inventory. The inventory is valuable to you and to your customers. Commercial property insurance will allow you to protect yourself from the risk of a covered loss like theft, fire, or damage, for example, to your goods. Should something happen to your inventory, or property, it may take you time to stock up again, but at least you will have had the financial protection to do so.

That’s just one scenario where commercial property insurance can assist. If you own and operate equipment or machinery that is damaged, insurance will help replace that and prevent your business from losing too much money due to any time lost in the replacement process

How much does commercial property insurance cost and how is the premium calculated?

The average Canadian business pays from $83 to $250 per month for a commercial property coverage limit of $1 million. Mid-size companies may pay from $1,800 to $10,000 per year. Of course, this can depend on your property and insurance needs and will change depending on the type of business you are insuring.

Because no properties are alike, it is best to talk to your provider about specific needs and add-ons you may require. Calculating the premiums will depend on things like:

  • Scope of coverage
  • Business location and size
  • Industry riskiness
  • Claims history
  • Security measures you may have in place
  • The age of electrical work and plumbing
  • Replacement cost
  • Age of the building

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 with 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.

  • Vacant Property Insurance 
    Most standard policies will have limited or no coverage for vacant properties. Vacant property insurance for your commercial property is important because your assets may not be protected, according to your policy. If someone is injured or there is damage to your property resulting in loss, you could incur large expenses, that could have been avoided.
  • Deductibles
    Deductibles for commercial property insurance work similarly to ones for personal property. They represent the amount that policyholders must pay out of pocket before the insurance coverage kicks in. Opting for a higher deductible typically results in lower insurance premiums, but it also means assuming a greater portion of the risk when damage occurs. Conversely, a lower deductible may increase your premiums but reduces your immediate out-of-pocket expenses in the event of a claim.

Common deductibles include:

  • Flat deductibles – This is a fixed dollar amount for each loss.
  • Percentage deductibles – Used in catastrophic events that result in large losses. The insurance company will calculate the amount paid as a percentage of either the insurance limit or property value.
  • Waiting period - A waiting period, also known as a cooling period, is often incorporated into commercial insurance policies. This period must elapse before the policy becomes effective,
  • Aggregate deductibles - Under this deductible option, the policyholder pays a fixed amount out of pocket during the policy period.

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Frequently asked questions about commercial property insurance

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

What is the difference between commercial property insurance vs landlord insurance? 

Landlord insurance covers a property owner from financial losses on their rental properties. There is usually coverage for the building, contents and liability.

Commercial property insurance, on the other hand, is for larger businesses that can help protect a building, contents from perils such as fire and theft. It can also include equipment coverage, and depending on your policy, can be paired with business interruption coverage, which will protect you from financial losses in case you have to halt operations for a period of time.

I’m renting out my residential property, do I need commercial property insurance?

The short answer is no. Landlord or rental property insurance is specifically for houses, condos etc. That you rent to others. It also protects your liability should a tenant or others put forward a claim against you due to negligence, mishaps, or accidents as the landlord and property owner.

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.

Do my tenant still need to buy insurance, if I already have commercial property insurance in placed?

Most landlords require or want their tenants to have commercial tenant insurance. In most cases it covers legal liability for lawsuits and other claims related to third-party bodily injury and property damage in the rented space.

Joel Kranc ,
Writer

Joel Kranc is a freelance writer and content provider who has worked with RATESDOTCA since 2019. He holds an MA in political science from the University of Toronto and a film certificate from New York University.

He has been published in and worked for such companies as CNN, Rogers Media, Institutional Investor Magazine, The Globe and Mail, Infrastructure Investor, BenefitsPRO Magazine, Global Finance Magazine, With Intelligence, the CPP Investment Board, Hospitals of Ontario Pension Plan, and many more financial services and industry publications.

He is the author of "Retirement Planning in 8 Easy Steps," which, when released in 2015, was No. 11 on the Publisher's Weekly US Bestseller List for Business and Finance, beating out Mark Cuban's "How to Win at the Sport of Business."

Education
  • Master's of Political Science, University of Toronto
Featured in
  • Benefits Canada
  • Institutional Investor
  • Plan Sponsor Magazine
  • Global Finance Magazine
  • Infrastructure Investor
  • Private Equity Investor
  • The Globe and Mail
  • Fund Directions Newsletter
  • BenefitsPRO
  • HR Professional
  • Advisor's Edge
  • Institutional Investor
  • Employee Benefit Advisor
  • Investing in Infrastructure Magazine (i3)

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