Commercial property policies may be purchased by
businesses that own or lease their buildings. While it is common
for property landlords to maintain some type of property
insurance coverage, it's important for a tenant business to
understand that such a policy usually covers only the building
owner's property, such as damage to the building or structure.
Loss or damage to the tenant's property, even though it's
located in a covered building, generally will not be covered.
Therefore, businesses operating on leased property will need to
purchase their own policies to cover their property.
The rules and procedures for tenant commercial property policies
are essentially the same as those for owned commercial property.
An insurance company will still evaluate the same factors, such
as a structure's location and construction materials, to
determine the likelihood of a property loss. The cost of tenant
coverage will generally be significantly less than for owned
property coverage, however, as the policy will only extend to
the leaseholder's on-premises property and not the actual
structure.
Typically, businesses operating on multiple premises are covered
by a single policy. In certain instances, such as when two
business locations serve widely different functions and have
different risk profiles, separate policies may be needed. This
may sometimes be the case when a business insures both an office
location and a factory, for example.
A commercial property policy may pay based on either the "actual
cash value" or "replacement value" of a loss. An actual cash
value policy will pay only the amount of the property's worth at
the time of the loss – in other words, the value of the property
after depreciation due to such factors as age and normal wear
and tear are subtracted. A replacement value policy will pay the
amount needed to purchase new property of like kind and quality
after a loss. In general, a replacement value policy better
ensures that a business can recover fully after a significant
loss. Replacement value policies are typically more expensive
than actual cash value coverage, however, because the policy
limits should reflect the cost to replaced damaged property with
new property.
Almost all policies have a "deductible," which is an amount the
business must pay out of pocket toward the cost of a claim
before the insurance company will pay. Generally, the higher a
policy's deductible, the lower its premium will be, as the
policyholder is accepting a greater share of the cost of any
eventual claims. Most policies will also include a "policy
limit," which is a maximum amount the insurer will pay toward
any covered loss.
Insurers use a process called "underwriting" to evaluate the
likelihood that a given policyholder will file a claim for a
loss. The greater the likelihood, the higher the premium will
be. If an insurer determines that a business poses too great a
risk of a loss, it may decline to issue a policy entirely. If
your business is declined for coverage, keep shopping; companies
have their own criteria for determining whether to issue
coverage and the rate to charge. If one company turns you down
or is too expensive, another may be willing to issue coverage or
offer a lower premium. There may also be certain steps your
business can take to lower its risk and either qualify for
coverage or get a lower rate.
Different types of commercial property policies protect against
different risks, or "perils." It's important to understand which
types of losses a policy does and does not cover. A commercial
property policy will almost never cover any loss that is either
not specifically included in the policy language or is
specifically excluded. Therefore, be sure you read a policy
carefully before you purchase it. You may need to buy certain
specialized policies, such as flood, windstorm, or crime
coverage to be protected from those particular losses.
Commercial property insurance is not standardized in Texas. This
means that, beyond certain minimum requirements, insurance
companies have a great deal of flexibility to develop their own
policies. As a result, the coverage provided by one insurer's
policy may differ substantially from that of another. When
shopping for commercial property insurance, be sure to evaluate
the costs and coverages of the policies you're considering
carefully.
Common commercial property coverages
Commercial property policies in Texas generally fall into one of
three categories:
Basic form policies
typically cover common risks or perils, such as damage caused by
fire, lightning, vehicles, aircraft, or civil commotion. Most
basic form policies also cover damage from windstorms, except in
counties on the Texas coast, where businesses will likely need
to purchase a separate policy for windstorm protection.
Broad form policies
typically provide basic form coverage plus coverage for
additional perils, such as water damage, structural collapse,
sprinkler leakage, and losses resulting from ice, sleet, or
weight of snow.
Special form policies cover
against all types of losses except those specifically excluded
by the policy. Common special form exclusions include losses
resulting from flood, earth movement, war, terrorism, nuclear
disaster, wear and tear, and insects and vermin.
Additional Coverages
Many business owners buy additional coverages. Some are
available as separate policies, and others are available as
endorsements, or "riders," that enhance or amend a policy's base
coverage. Generally, adding endorsements to a policy will
increase your premium. Ask your agent about these additional
coverages:
Liability Insurance protects
against the cost of lawsuits and possible court judgments.
Business Interruption Coverage
pays for actual or projected income lost when a covered peril
prevents normal business operations. Coverage forms can be added
to a commercial property policy that provide only business
income coverage, only extra expense coverage, or a combination
of both in the same form.
Extra Expense Coverage pays
any added costs a business may incur resulting from the need to
expedite the return to operations after a covered loss.
Building Occupied by The Insured
covers a building that is regularly used by the insured but not
owned. This endorsement can be important if a business leases or
borrows a building that's critical for operations.
Newly Acquired or Constructed Buildings.
Most commercial property policies provide a specific benefit for
newly acquired property, usually for 30 days. This allows for
any newly obtained property to be insured before it is added to
the existing policy. Generally, a commercial property policy
insures only the buildings specifically named in the policy. The
newly acquired property coverage extension stipulates an amount
of time during which the insurance company must be notified of
the acquisition, after which the coverage will not apply.
Property off Premises.
Property located within a covered structure is generally covered
by a base policy. However, damage to property located off
premises may not be covered, or may only be covered to a limited
extent.
Coverage for off-premises property can often be purchased as an
endorsement to the base policy or as a stand-alone policy.
Personal Property of Employees While at
Insured Premises. Generally only property owned by
the insured entity is covered, unless this endorsement is added.
A coverage extension in the base policy might provide a limited
amount of coverage for personal effects and property of others.
Valuable Papers Coverage.
Assigns a value to records or other essential information that
could be lost. Papers are typically covered only to a limited
extent by the base policy.
Ordinance or Law Coverage.
Provides an additional amount to cover the increased cost of
construction necessary to comply with building codes that might
be triggered after a covered loss damages the insured property.
This coverage can be added by endorsement, but the base policy
might contain a limited benefit.
Boiler and Machinery Coverage.
Boilers, air conditioning units, compressors, steam cookers, and
electric water heaters are examples of machinery typically
covered by this endorsement. Coverage generally extends to
specifically listed machinery and any subsequent losses that
result, such as when a boiler explosion or water heater leak
causes damage to other property. This coverage may also often be
purchased as a separate stand-alone policy. |
