Commercial Property
One of the largest components of your financial investment is the building in which your business is housed, assuming you own the building and its contents. In all cases, a general property insurance policy will provide coverage for buildings, contents, equipment, and other real and personal property owned by your business.
Two types of property insurance policies are "Named Perils" and "All Risks."
Named Perils Policy: Provides protection for specific events such as fire, smoke, windstorm, hail, vandalism, or sprinkler leakage. The policy only covers those events named in the policy and is usually less expensive because it provides less coverage.
All Risks Policy: An "All Risks" policy does not mean that all losses will be covered. Rather, it provides protection for any loss by perils not specifically listed as exclusions in the policy. Common exclusions in an “All Risks” policy include: earthquake, flood, wear and tear, illegally acquired property, etc. However, you can add numerous riders and endorsements to your policy to add coverage such as: earthquake, etc.
How Property Losses Are Determined
Property insurance can either be purchased on a "replacement cost" basis or an "actual cash value" basis.
Replacement cost: Is the amount it would take to replace or rebuild your business, or the damaged part of it, with materials of like kind and quality, without deducting anything for depreciation. Replacement cost does not include the value of your land.
Actual cash value: Is the amount it would take to repair or replace the damaged or stolen property after deducting for depreciation.
N.B. Whether your business is insured at replacement value or actual cash value, it is important to keep track of the value of your property. Inflation tends to increase the replacement cost of your property, while the actual cash value may decrease over time. The value of your property can be determined by using the original construction costs, regional construction costs guidelines, or by hiring a professional appraiser.
If your property contains valuable items such as fine arts, accounts receivable, or valuable papers and records, you may need to buy a policy endorsement to increase your protection to cover those specific items.
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