How to Get Commercial Property Insurance
If you own or operate a small business in the U.S. and own (rather than lease) commercial property, you likely need commercial property insurance to protect your business from a disaster that could cause significant damage and loss. Many states require property owners to carry a minimum amount of commercial property insurance, but you may want more depending on the risks your business faces. The process to get commercial property insurance is similar to getting any other insurance such as car insurance. However, commercial property policies can be significantly more complicated than basic policies you may have purchased to cover your personal property.
Evaluating Your Insurance Needs
Check your state's law. The state in which your business is located may require specific minimum amounts of commercial property insurance. These requirements represent the minimum commercial property insurance you must purchase for your business.
You can contact your state's insurance commission to find out if there are any insurance requirements that apply to your business.
You also might check with a local small business association or Chamber of Commerce. These organizations typically have information about state or local insurance requirements.
Business organizations and industry associations also may have discounts with particular insurance companies that you can take advantage of.
Quantify the risks your property faces. Your commercial property may face different risks depending on where it is located and the prevalent weather threats in that area. Specific threats may dictate whether you need to purchase additional coverage.
For example, if you have an oceanfront surf shop, you may need to be covered for floods, hurricanes, and wind damage.
On the other hand, if your business is located in the midwest, you wouldn't necessarily be worried about hurricanes – but tornadoes may be a concern.
The risks your property face don't just depend on its location, but also the type of building you want to insure, how old it is, and the materials with which it was built.
Different types of businesses may face different risks, or be threatened by the same risk to a different degree. For example, computer hackers are a risk to every business, but if you are a software developer, corruption to your files could destroy your business – as well as your reputation.
Distinguish property coverage from tenant coverage. If you are leasing your business's space, the property owner likely has property insurance. However, that insurance will not cover any damage or loss to your property, including fixtures, inventory, and business assets.
If you are leasing your property, you need to contact the owner and find out what is covered under their commercial property insurance policy so you can get tenant coverage for your business assets that aren't protected.
However, if you own the property, you typically can find coverage that covers the building itself as well as the assets inside.
Take an inventory of your business assets and determine which, if any, are already covered under an existing insurance policy.
Keep in mind that the more you want commercial property insurance to cover, the more you'll typically pay in terms of your premiums.
In addition to the building itself, consider whether you want to include the grounds surrounding the building and any other property, such as a warehouse used for storage.
Decide which types of coverage you want. Commercial property insurance may include a number of different types of coverage for different types of losses. While generally it's better to be over-insured than to be under-insured, you don't want to purchase insurance you don't need and likely will never use.
If you're leasing a building, look for "building occupied by the insured" coverage. This covers your business property and other damages or loss to your business.
You also can purchase business interruption coverage, which pays you the income you would have made while your business is down, for example if the building is hit by a hurricane or tornado and you have to close for several weeks.
Specific machinery, such as boilers or compressors, can be covered specifically. This coverage typically must be purchased separately as an endorsement, and covers losses that result from a machinery malfunction.
If you have particular items of value, such as fine art or valuable papers such as original business documents, you can get an endorsement to provide additional coverage specifically for those items.
Other endorsements may be available based on the type of business you operate and the risks associated with that business.
Address different risks at different locations. If your business has several locations, some may face greater risks than others. You want to keep this in mind as you search for commercial property insurance policies so that you can make sure each location is covered adequately.
If the risks differ significantly between locations, you may save money by purchasing separate commercial property policies for each of the locations, rather than grouping the properties together under the same policy.
For example, if you own one surf shop on the boardwalk and another location 20 miles (32.2 km) inland, the boardwalk location may require additional coverage and be more expensive to insure than the inland location.
However, you can save money with a separate policy for the inland location, since it doesn't face the same risks associated with the boardwalk location.
Getting Quotes
Search for agents near you. To get quotes for commercial property insurance, find agents or insurance companies located near your business that sell commercial property insurance. While many national insurance companies offer these policies, you may get better rates from a local agent.
Most insurance agents and insurance companies have websites. You can find agents near you by doing a general search on the internet.
If you know other business owners nearby in your industry, you may want to ask them if they can recommend a particular insurance company for your commercial property insurance.
Small business associations or your local Chamber of Commerce also may be able to provide you with recommendations.
Check the licenses of companies and agents. Before you get a quote or have any dealings with a particular insurance company or agent you found in your search, make sure their license is in good standing.
In most cases this should not be a problem, however, better safe than sorry. If you don't get your policy through a licensed agent, you may not be covered when you have a claim.
Most state insurance commissions or boards have a directory on their website. You can find out if the individual agent or company you're interested in has coverage by searching their name in the directory.
Some agents or companies may have more than one location in your area. Make sure you're checking for the correct location where you plan to get your policy.
Gather information about your property. To get a commercial property insurance quote, you'll have to provide the insurance company with some basic information about your business and the location of the property you want to insure.
The value of the property you want to insure will determine how much you'll have to pay for coverage. For this reason, it's important to include everything, and provide as many details as possible.
If you haven't already, take an inventory of your business and its assets. You'll want to know the value of all your business property, as well as the approximate value of the building itself.
This may mean you need to get an appraisal if your commercial property has not been appraised recently.
Request quotes from several companies. Getting several quotes allows you to comparison shop to find the best premiums on coverage that adequately meets your insurance needs for your property and business.
The insurance agent typically will have a brief application you can complete to request a quote for commercial property insurance.
If possible, try to request several different quotes from each company, so you can properly evaluate the cost of the insurance with any additional endorsements.
You'll also want to look at the cost of the insurance at different deductible levels. Generally, the higher your deductible, the less your premium will be.
If you're unable to find a private insurance company that will insure your commercial property, contact your state insurance commission and see if they offer insurance for business owners in your situation.
Compare replacement cost and cash value coverage. If you have replacement cost coverage, that means the insurance will pay the full cost to replace lost or damaged property. With cash value coverage, you'll only get the actual cash value of your property, minus depreciation.
Replacement cost coverage generally is more expensive than cash value coverage.
However, replacement cost coverage may make more sense if you have business assets that depreciate relatively quickly, such as computers.
Otherwise, you may not get enough money from cash-value coverage to purchase new computers if your computers are lost as the result of a disaster.
Replacement cost coverage also makes sense if you have machines that you use in manufacturing your products that are rare and difficult to replace, or have to be custom built.
Assess your business's budget. Your business must be able to pay the premiums for the coverage you choose. Beyond premiums, your deductible will be an important consideration in the event you make a claim.
Generally, your total insurance coverage shouldn't represent more than 15 percent of your total operating budget.
However, keep in mind that this includes not only commercial property insurance, but all other insurance, such as professional liability insurance or workers' compensation insurance.
