What does Biden's student loan forgiveness mean for you? Learn more about the three-part plan here.

Do You Need Commercial Property Insurance?

If you own a business, you need insurance to protect the buildings, equipment and inventory that allow you to operate. Here’s your primer on commercial property coverage.

Written by Hilary Collins / August 24, 2022

Quick Bites

  • Commercial property insurance protects businesses from damages to the business’s building and its contents.
  • A commercial property insurance policy will help your business survive things like weather events, theft, vandalism and vehicular damage.
  • You should have enough coverage to rebuild your business from the ground up if the worst should happen.

Are you dreaming of opening your own business? Have you already started? Then you likely know that running a business requires a lot of hard work, money and patience for navigating complicated challenges.

Commercial property insurance is just one of these challenges. Even if you’re familiar with the ins and outs of insurance in general, you might be wondering: What does commercial property insurance cover? How much do I need? How does it work? Let’s take a look at the basics of commercial property insurance to answer your burning questions.

Inside this article

  1. What is it?
  2. Why do I need it?
  3. How does it work?
  4. How much coverage do I need?
  5. How much does it cost?
  6. Do I still need it if I rent?

What is commercial property insurance?

Commercial property insurance is a policy that offers businesses protection for their building and what’s inside.[1] Commercial property insurance serves the same purpose as any other type of insurance—it’s to help you recoup your losses when something goes wrong. Like auto insurance for your car or homeowners insurance for your house, commercial property insurance will protect you and your business from damage, loss, theft, vandalism and other potential problems.

If you run your business out of your home, commercial property insurance probably isn’t the best choice for you—you might look into home-based business insurance instead. Similarly, if your business is renting out your property, then renter’s insurance for homeowners is likely a better fit. But if you’re a small business owner with a bustling store front, you’ll need commercial property insurance.[2]

Why do I need commercial property insurance?

Say you go to open your business one morning and notice a window has been bashed. Someone has broken in and stolen a good deal of your most expensive products.

Without insurance, you may very well end up paying to fix the window and replace the merchandise and other stolen items out of pocket. If you don’t have that money on hand, your business could suffer a serious setback. Commercial property insurance can provide critical financial help and minimize disruption to your business in this scenario, and in a variety of others.[3]

Additionally, some landlords and mortgage lenders will mandate that you hold commercial property insurance if you’re renting or paying off your office space with them. Review the terms of your lease or mortgage to make sure you have the coverage they require.

How does commercial property insurance work?

In the most simple terms, you choose a policy or a set of policies that will protect you and your business from unexpected losses. You will make your payments every month and then, when something bad happens—like a hurricane, vandalism or fire—you will be able to file a claim and be reimbursed for your losses.

What that policy looks like and how much it costs will depend on a variety of things, like your insurer, your business, your location and more. Many insurers offer a type of policy called the Businessowners Policy (BOP) that rolls multiple popular commercial property coverage options into one. Here’s what the BOP typically covers:

  • The actual building. You can choose to insure it for its cash value (what it’s worth in the market) or for its replacement cost (what it would cost to rebuild it from scratch). Also covered are permanently installed fixtures, machinery, equipment and appliances.

  • The contents of the building. This will include almost everything on the property that is used to run your business, such as computers, inventory and materials.

  • The property of others that your business is legally liable for. Say you run a small business tailoring and mending designer clothes. If your storefront burns to the ground, all of those expensive suits and gowns will also be insured as they were in your custody.

The damages covered by the BOP are very similar to what’s covered by homeowners insurance. Here’s a breakdown of covered events.

CoveredNot covered
FireEmployee dishonesty
LightningSteam boiler breakdown
Most explosionsNormal wear and tear
Windstorm or hailFlood or earthquake
Smoke from accidental fireNuclear reaction
Damage from aircraft or vehicles (not including any owned or operated by the business)War
Riot or civil commotionPower failure (except when it causes damage or loss)
VandalismComputer hardware or software failure
Automatic sprinkler leakageRobbery or burglary
Sinkhole or building collapseMost pollution
VolcanoMissing property when the cause is unknown (like an inventory shortage)
Some water damageChanges in humidity or temperature

If you want or need coverage that goes beyond the standard BOP—say you live in an earthquake zone and want earthquake coverage—you should talk to your insurance agent about adding on a separate policy. There are a variety of add-ons you can choose based on the kind of business you own and the unique challenges or risks you deal with.

How much commercial property insurance do I need?

Basically, you want to get enough commercial property insurance that if your business was completely lost, you could rebuild it and start again. Because of this, insurance agents may advise you to cover it for its full replacement value rather than its cash value, as it may cost far more to rebuild a building and replace equipment than the cash value of the property and stolen or damaged items themselves.[4]

For example, perhaps you have six older computers in the office that work just fine—until water damage ruins all six. The cash value of six dated, used computers might not be sufficient for you to buy six new computers to replace them. Insuring your property for its full replacement value can solve this problem.

How much does commercial property insurance cost?

According to Embroker, a digital insurance brokerage, the average small business will pay between $1,000 and $3,000 a year for property coverage.[5] Another brokerage, Insureon, pegs the annual median premium at $756 (or $63 per month).[6] However, a variety of factors determine the cost of your unique insurance policy, including:

  • The business’s location

  • Industry

  • Occupancy

  • Equipment on site

  • Age and construction of the building

  • Security and safety features of the building

You can expect a higher rate for insuring your business in the following scenarios:

  • It’s in a high-crime area

  • It’s in a location that commonly experiences wildfires

  • You work in a high-risk industry

  • You have a large number of employees and customers or expensive and dangerous equipment on site, has a lot of

  • It’s an older wood building (rather than a brand new, less flammable building) or doesn’t have sprinkler systems or security cameras in place.

But of course the opposite is also true: If your business is in a safe area or a low-risk industry, for example, you will likely see a significantly lower rate.

Is commercial property insurance still needed if I rent?

Short answer: yes. Longer answer: While you will almost certainly need to insure the contents of your business property, damage to the building itself might be taken care of by the owner of the building. You’ll need to consult your property lease.

If you’re the only tenant in that building—say you rent an entire warehouse rather than a small storefront in a multi-use building—you might have to insure the building itself and could be on the hook for rent even if the building is damaged to the point of being unusable. Carefully review your lease with your insurer to see how much insurance you need and if any add-ons are needed.

When you’ve built a business from the ground up, you don’t want to see a weather event or a thief take the rewards of all your hard work away from you. Make sure you have the commercial property insurance coverage you need to keep your doors open.

FAQs

How should I shop for a commercial property insurance provider?

Get multiple quotes from reputable insurance providers and compare the cost of the policies, the coverage options, the deductible options as well as the overall customer service and claims process. Don’t simply opt for the cheapest one—make sure you’re getting enough coverage to help you recover from a major business setback.

What is evidence of commercial property insurance?
Article Sources
  1. “Commercial Property Policy,” International Risk Management Institute, https://www.irmi.com/term/insurance-definitions/commercial-property-policy.
  2. “Get business insurance,” U.S. Small Business Administration, https://www.sba.gov/business-guide/launch-your-business/get-business-insurance.
  3. “Property Insurance,” Insurance Information Institute, https://www.iii.org/publications/insuring-your-business-small-business-owners-guide-to-insurance/specific-coverages/property-insurance.
  4. “How Much Commercial Property Insurance Do I Need?,” J. Archer Insurance Group, April 15, 2021, https://www.archerinsgroup.com/blog/how-much-commercial-property-insurance-do-i-need/.
  5. “How Much Does Commercial Property Insurance Cost?,” Embroker, May 10, 2022, https://www.embroker.com/blog/commercial-property-insurance-cost/.
  6. “Commercial Property Insurance,” Insureon, June 29, 2022, https://www.insureon.com/small-business-insurance/commercial-property.

About the Author

Hilary Collins

Hilary Collins

Hilary is an experienced finance writer with a passion for turning complicated topics into readable stories with real-world takeaways.

Full bio

Related Content