For business owners, buying commercial property insurance coverage may be one of the most important insurance purchases that is made, right after you buy general liability insurance. Typically, the best way to buy insurance for your business when you need property insurance too is to buy coverage in a Commercial Package Policy (CPP). That is because insurance carriers provide additional discounts that help reduce the overall cost of coverage when coverage needs are bundled in our policy.
Unlike liability, commercial property insurance limits of coverage are relatively easy to determine. This is because the property can be evaluated for its cost new, approximate current cash value, or the cost to replace. Property is tangible and it is relatively easy to determine the amount of insurance required. Of course, other things need to be known to set the values correctly but the commercial property insurance coverage amounts are certainly easier to drill down than your maximum total liability exposure. Finding the right limit for commercial general liability insurance is tougher because of the many outside factors that influence the exposure. Property insurance amounts are fairly simple, in comparison.
Commercial property insurance coverage protects most of your physical property, from the buildings and structures, to the business equipment, production machinery, business personal property, and the inventory, stock, finished product, and products in transit. Some types of property are better covered with other types of property insurance. For example, if you are a contractor and you have excavating equipment you transport to other locations to complete your work, you’ll want Inland Marine Insurance coverage to protect the equipment wherever it is used away from your premises and business location. Inland Marine coverage can be added, in many instances, as an endorsement to Commercial Package Policies (CPP). We can also include your interest in installed equipment and fixtures when you do not own the building where these types of property are installed.
Commercial Property Insurance coverage from our carriers is broad protection that is designed to protect against losses that can impair your ability to conduct your business. Coverage is available that covers named perils (causes of loss) and can be made available to cover for all accidental direct physical losses (special form) that are not otherwise limited or excluded. However we end up configuring your coverage, the Commercial Property Insurance policy is flexible. In the end the best coverage is the coverage that reflects the unique characteristics of your business and provides the coverage that you need to cover these key assets.
Commercial Property Insurance – Property Types Covered
Building coverage – Buildings are structures where operations of your business take place. They include buildings and structures attached to the ground and that do not move or relocate under ordinary circumstances. This will include your offices, factory, workshop, and often times, signs, light poles, fences, and similar structures. This may include equipment and apparatus that are or have become a permanent part of the structures.
Business Personal Property – On the commercial property insurance policy documents, your business personal property can include a wide range of property that is mobile and not otherwise affixed to buildings or structures. These may be your desks, chairs, file cabinets, computers, tools, fork lift, other equipment, inventory, raw materials, and similar types of property used to perform the variety of tasks you complete as part of your business operations.
Business Income – It is an interesting fact that many businesses that are insured for loss to their property still go out business after a loss. This is often because the ability of the business to continue normal operations is interrupted to such an extent that the can’t generate sufficient income to keep taking work, complete work on hand, retain employees, and otherwise function efficiently to produce work and make a profit. Some expenses will continue so any diminishment of income can result in red ink on the bottom line. That raw truth is that it takes time to reconstruction complicated buildings, and buy the materials and equipment needed to return to normal business operations after a loss. In many cases a business impaired due to a property loss will find it is more expensive to operate which further drains the bottom line.
Business income coverage is designed to provide a stream of income after the loss and while the business buildings are reconstructed, the necessary equipment is purchased and installed, and the property and inventory materials are put back into inventory to begin producing an income. It is designed to get you past these hurdles. Businesses often fail even after building and property assets are rebuilt because customers have moved on to other suppliers that could fulfill their needs when your business was interrupted. Sometimes these customers are lost forever. Business income coverage is designed to help you pay ordinary payroll of key employees because a brain and talent drain in an interrupted business is often another contributor to a business that fails even when it has adequate commercial property insurance coverage. Business income coverage can replace income that you can’t currently produce to keep operations and commercial capabilities intact. It may include the loss of rents, tuition, and similar forms of income (depending upon your type of business, of course).
Extra Expense – An ancillary coverage of business income insurance is what is known as Extra Expense coverage. Extra expense coverage may be necessary to expedite equipment and apparatus into your possession after a loss. The idea of extra expense coverage is to mitigate the impact of the loss upon your ability to continue operations. Minimizing the impact of the loss and the ultimate cost of the claim is the concept behind extra expense coverage. Where appropriate it makes sense to pay the added cost to expedite a piece of equipment from somewhere else in the world if it cuts down the ultimate cost of the claim. In the same respect, your business is likely to encounter a host of costs that occur because of the interruption of your business. The extra expense coverage is designed to help offset the costs of these often unavoidable additional costs to returning to normal business operations.
Valuable Papers & Records – Valuable papers and records coverage is an important extension of coverage that is often forgotten. Most commercial property insurance policies can include this important coverage. An example of valuable papers and records may be found in a dentist office. Every dental practice has treatment records that include x-ray images, notes, and patient history. If a building were destroyed these records may be lost to the business and would be difficult and expensive to replicate. The coverage under this section can aid in the replication and recovery of the information on the patient record so that the dental has an adequate patient record to provide professional advice and treatment.
Accounts Receivable – Many businesses extend credit terms to their customers and this extension of credit is a receivable until collected. In other words, the product or service has already been delivered and the amount or value of the sale has not been completely recovered from the customer. Until this money is received it represents a loss of the goods and services already provided. This is where accounts receivable coverage comes into play in the commercial property insurance policy. It defends the business against the inability to collect for products and services already delivered. Depending upon the business these accounts receivable amounts can be substantial and the inability to be able to document and prove a loss to enforce collection can easily result in losses that are substantial. Property management of the receivables, including having adequate backup records, minimizes the loss. Nevertheless, the inability to collect for goods and services already delivered is a loss to the business that may not be recoverable without accounts receivable coverage.
What isn’t Covered in Commercial Property Insurance Policy
Electronic Data – In the modern world most commerce is conducted on or directly tied to the use of computers. Basic coverage is not provided by can be amended onto the policy is reasonable ways to afford protection for your business.
Earthquake & Volcanic Activity – Earthquake and more broadly, earth movement, are natural events and are excluded in the standard commercial property forms used by the majority of carriers who use the Insurance Services Office (ISO) documents to construct their commercial property insurance policies. Volcanic action has similar impacts. An earthquake is a special type of peril where the movement of the earth caused by seismic and volcanic activity of the earth is excluded including the sinking, shifting, and pushing or rising up of land. This includes volcanic flows of magma, emission of gases, and ejection of ash into the atmosphere. Earthquake includes aftershocks that may occur days after the first event which makes all of these a single event. Earthquake also includes landslide and mud flow. The movement of earth caused by man-made activities such as blasting and excavation may be covered but at the very, these activities make liability coverage available in most instances to address the damage caused to buildings and structures. Earthquake coverage endorsements are available to the modify the commercial property insurance policy forms but not all carriers are willing to add the endorsement or provide a price for the coverage.
Flood – Flood insurance is not covered in the Commercial Property Insurance policy in any form. Flood is broadly defined as the accumulation and movement of water out of the boundaries that normally contain the water onto and over areas that might otherwise be normally dry. This may occur because of natural events such as an excessive amount of rainfall. It may also occur because a dam or dike fails and releases water that was confined and controlled for reasons such as flood control, hydroelectric power generation, and similar. The Federal Emergency Management Agency (FEMA) manages the National Flood Insurance Program (NFIP) and the the government has a website devoted to the flood insurance program called floodsmart.gov. Flood includes overflow of inland or tidal waters; rapid and unusual accumulation or runoff of surface aters; mudflow (of which water is a primary constituent); or the collapse or subsidence of land near a shore or a lake or similar body of water that includes action caused by waves or currents when water has risen or exceeds normal cyclical levels. Flood insurance can be purchased through authorized flood insurance agents with programs underwritten and backed by the NFIP. I am authorized to provide flood insurance underwritten through the NFIP and write-you-own-flood-insurance (WYO) authorized insurance carriers.
Dishonesty – The commercial property insurance policy coverage does not cover for losses due to criminal acts committed by you or your employees. Theft by employees is not covered. Shoplifting and theft by customers is not covered. The sum of these losses, including those due to poor record management, are often referred to as “shrinkage“. Shrinkage is the loss to inventories that inventory audits reveal. This audit reveals the differences between the items that should be on hand at the time of an audit, and the actual items found to be in hand after an audit. After allowing for the sale of goods during a measurable period of time, when the inventory at hand is less than it should be, the loss is referred to as shrinkage. Dishonesty is not generally covered, nor is shrinkage in any form.
Utility Interruption – We’ve all become accustomed to having a steady, reliable source of electric power, water, and gas utility services. Telephone and internet communications are included within this exclusion as well. When these services are interrupted it can set off a series of additional failures that can have a significant impact on business enterprises. There may be some enhancement endorsements available from various carriers to provide some relief from the financial impact of utility and communication interruptions.
Equipment Breakdown – Commercial property insurance coverage is triggered on the sudden, accidental damage or loss to property that is triggered by an external cause, generally speaking. Lightening, for example, is an external source that causes damage to property. Windstorm is an external cause that causes damage to property. Some events occur to property because of the breakdown or mechanical failure of a piece of equipment which includes rotating parts, pressure vessels or pipes, and or electrical components, panels and apparatus. Mechanical Breakdown insurance is also known by a more common description used in decades past as Boiler & Machinery Coverage. Today, the more common term is the Mechanical Breakdown coverage. This coverage is available to add to most commercial property insurance policies as either an endorsement and as a stand-a-lone policy. It covers almost every form of machinery including copiers and telephone systems. Typical commercial property insurance coverage excludes these following losses:
- Mechanical breakdown;
- Electrical arcing;
- Artificially generated electrical currents;
- Centrifugal force;
- Boiler overheating, cracking, bulging, sagging;
- Bulging, cracking or collapse of pressure vessels, such as water heaters, compressed air tanks, steam cookers and kettles, expansion tanks and condensate return tanks.
The damage to adjacent equipment or property is covered in the Breakdown coverage. Many forms of covered equipment are covered. Here is a representative list:
- Boilers, pressure vessels, water heaters
- Electrical distribution systems
- Heating and cooling systems
- Refrigeration (including lost refrigerant)
- Production equipment
- Office equipment
- Computer technology
- Computer controlled machines such as CNC machines and robotics
- Communications systems, including phone and voice-mail systems
- Security and fire detection systems
- Ovens, stoves, furnaces
- Elevators, escalators, cranes, hoists and lifts
- Cash registers and inventory control systems
- Diagnostic equipment
- And other types of equipment
Excluded Property in Commercial Property Insurance Coverage
- Bills and currency
- Autos licensed for use on roads, auto parts, autos held for sale
- bridges, roadways, walks, patios and paved surfaces
- cost of excavation
- foundations or structures
- underground, flues, drains, and most piping and wiring
- Property on water or airborn
- Electronic Data
- Livestock, shrubs, plants, trees
COMMERCIAL PROPERTY INSURANCE SUMMARY
Commercial Property Insurance helps protect your business from loss to property and business income that could put your business’s assets at risk and impair your ability to produce income. Having the property commercial property insured, on the right form of coverage, and with the necessary amendments and enhancement endorsements in place is important business that require a steady, knowledgeable insurance professional. I have almost four decades of experience working with business clients. Call me at Insurance Associates Agency Inc. today for your Ohio or Michigan commercial property insurance needs! You can reach me at (513) 779-7920 or toll free at (800) 823-9643 or just use the contact form to reach Terry McCarthy for personal attention on your insurance needs. Better yet, stop by our offices at 8114 Paul Manors Dr., West Chester, OH 45069. I’m here to help you and I am looking forward to your call or visit.
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