What does commercial property insurance cover?

Commercial property insurance is a type of property insurance that covers buildings and other structures that are used for business purposes. This type of insurance can help protect your business if it’s damaged or destroyed by a covered event, such as a fire, storm or theft. Commercial property insurance can also protect your business equipment and inventory.

If you’re like most business owners, you know that commercial property insurance is a vital part of protecting your company as it provides peace of mind in the event of a disaster or accident.

But what does this type of insurance actually cover? Below, we’ll take a look at some of the most common types of coverage included in commercial property policies. Read on to learn more!

What is covered by commercial property insurance?

Here are the essentials that your commercial property insurance should cover:

The building structure itself, including any fixtures or fixed objects a building contains, such as sidewalks, company signs, yards and fences. The contents contained within a building or structure, including all physical objects related to your business not attached to the building itself. However, this is not standard across all commercial property insurance policies. You might need to take business content insurance as an add-on for some policies.Bodily injury or property damage caused by something on the insured site. The policy also may cover any third-party legal fees incurred due to an accident at the insured location. This is also not standard and might require the holder to add a liability insurance policy.

What damage is covered under commercial property insurance?

Commercial property insurance covers most natural disasters or accidental damage to the building, contents and equipment. Some of the damage that is covered by commercial property insurance includes: 

Damage from some natural disasters (e.g. Storms). Confirm with your provider the natural calamities covered under your policy.LightningExplosionsRiotsWater damage from broken or leaking water pipes Fire damage Damage from aircraft or vehiclesVandalism Falling objects (This will require broad form coverage)Subsidence (This will require broad form coverage)Ice and snow damage (This will require broad form coverage)Theft of jewellery or firearms (This will require a special form of coverage)

What damage is not covered under commercial property management?

While most building insurance policies will provide cover for a number of incidents, there are some exclusions, including: 

Nuclear eventsEarthquakes (These is covered in some policies)Damage caused by the general wear and tear of the property over time Terrorist attacksDeliberate damage and neglect to the property Military activity and warPoor workmanship Pollution Vermin infestation and attackAny form of flooding. To safeguard your business building from flood damage, you’ll need to purchase a different flood insurance policy.Many policies will not cover losses that occur if the property is unoccupied for a certain period of time or is being used for business purposes other than the one stated in the policy. 

It’s important to read through your policy carefully to make sure you know what is and is not covered. This is by no means an exhaustive list; we strongly recommend that you check with your insurance broker to see exactly what’s covered before you take out a policy.

If in doubt, ask for a copy of the policy wording or get in touch with us, and we’ll be happy to help.

Important endorsements/ Policies to add to your commercial property insurance

It may be important to supplement your commercial property insurance with endorsements or policies that provide additional protection. Here are a couple of important endorsements you may wish to add to your commercial property insurance policy:

Business interruption insurance

Business interruption insurance is an agreement that covers the cost of shutting down or limiting operations for a set period of time. This can be caused by fire, theft, or damage caused by force majeure events, such as storms.

The idea behind this type of policy is to help protect your company from financial losses from unforeseen events so you can get back up and running as quickly as possible. Such additional protection will stop you from having to worry about being unable to cover ongoing expenses while you sort out your problems.

For example, if your business were to be hit by a natural disaster and you had to close your doors for a few weeks to rebuild, your business interruption insurance would help reimburse you for lost profits. This could be a huge help when your business would already be struggling.

Equipment breakdown insurance

Equipment breakdown insurance is one of the most important types of business insurance. It covers the cost of repairing or replacing business equipment that breaks down due to a covered cause. This includes things like mechanical failure, power surges or fires. No one can predict when an equipment breakdown will occur, but with equipment breakdown insurance in place, you’ll be prepared for the unexpected. 

Liability insurance

Commercial property owners may be liable to anyone who gets injured or gets their property damaged on their premises. To protect against the risk of lawsuits resulting from accidents, liability coverage is essential in order to reduce exposure to legal costs and potential damages. 

Content insurance

Many business owners make the mistake of thinking that their commercial property insurance policy also includes contents insurance. If your commercial property insurance only covers the building structure, you will need a separate policy to cover business contents. If your business suffers a fire, theft or other types of destruction, your contents insurance will help to replace any lost or damaged building contents or belongings. This could include furniture, equipment, or stock.

Flood insurance 

Flood insurance is a must-have for any business that operates in a flood-prone area. A typical commercial property insurance policy doesn’t cover losses from flooding, so it’s important to make sure you have a separate flood insurance policy.

Flooding can cause extensive damage to your business property and can often result in total losses. Flood insurance is thus essential to protect your business from catastrophe.

What to look out for in your commercial property insurance fine print

Before you purchase a policy, be sure to read the fine print. There are several things you need to watch out for when it comes to your coverage. Here are three of the most important ones:

Endorsements for protective safeguards

Be sure to ask your insurance agent about any endorsements for protective safeguards that may be included in your policy, and specifically what those endorsements mean for your coverage. You may receive a discount on the policy!

Some of the most common types of protective safeguards considered during valuation include:

Burglar alarm systemsSmoke detectors and fire alarmsSprinkler systems and fire extinguishersSurveillance cameras

However, it’s important to be candid about the protective safeguards installed on your property. The wrong information could lead to your insurance company not paying for damage to your property.

Let’s take a fire sprinkler system as an example. If you report that you have one in place and accept the discount, then at the time of loss, it is determined not to be present, your policy will likely be void and you won’t receive your pay out.

Theft exclusions

Theft exclusion is a provision in commercial property insurance policies that excludes coverage for any loss due to theft. Theft is one of the most common causes of business interruption. In fact, more than half of all businesses will experience some form of theft during their lifetime, and small businesses are hit especially hard – suffering twice as many economic losses annually on average than larger firms do. That’s why it’s so important to have comprehensive insurance protection against theft, and it’s important to check the small print in your policy for theft exclusions.

Cosmetic damage exclusions

A cosmetic damage exclusion is a property insurance provision that excludes coverage for damage to property that is purely aesthetic in nature. Cosmetic damage is generally understood to mean any damage that does not affect the property’s function or use. Property owners who want coverage for cosmetic damage may need to purchase an add-on policy or endorsement.

Can you cover unoccupied commercial properties with commercial property insurance?

You cannot cover unoccupied commercial properties using commercial property insurance. Commercial property insurance is for properties that are being used for business purposes. If your property is not being used, you should secure an unoccupied commercial property policy – a type of property insurance specifically designed for properties that are not being used or occupied by anyone.

Can you cover a listed building/property with commercial property insurance?

No. You need listed property insurance. Commercial property insurance covers property that is used for business purposes, such as a shop or office. Listed properties are buildings that are protected by law because of their historic or architectural significance. Examples of listed properties include stately homes, churches and cathedrals. Insurance for listed properties is more expensive than other types of commercial buildings because the insurer takes on greater risk when covering these types of structures.

Is commercial property insurance mandatory?

Commercial property insurance is not mandatory in the UK, but it is highly recommended. However, most mortgage providers will insist that you take out a policy to cover their interests in case of any damage or losses. For most businesses, commercial property insurance is essential for protecting their property and their bottom line. 

How much does commercial property insurance cost?

Commercial property insurance rates vary widely, depending on several factors, including a property’s location, its age and the type of business conducted on the premises. The cost also depends on how much coverage you want: basic, standard or comprehensive.

Generally speaking, though, commercial property insurance costs more than residential property insurance. This is because commercial properties are typically at greater risk of fire, theft or other types of damage or loss than homes are.

Commercial property insurance ranges from £500 to £3000 per year for a small office space, or to over £30,000 per year for large warehouses or industrial buildings. For a more accurate estimate of what your specific policy would cost, it’s best to contact an insurance broker or agent.

Factors that affect commercial property insurance premiums

Commercial property insurance premiums are affected by a variety of factors. Here are some of the most important ones: 

The size of business premises

The size of the premises is one of the most significant factors that determine commercial property insurance premiums.

A larger building will usually have a higher total worth, which means it carries a correspondingly higher risk profile, and thus would involve a greater claim payout should anything go wrong. The same can be said for businesses with more valuable assets; they’re going to need more comprehensive coverage.

Geographic location

Geographic location is also a factor that affects commercial property insurance premiums. Commercial property in areas that are more prone to natural disasters may cost more than those situated in safer areas.

Age of a building and equipment 

The age of the insured building and its equipment can significantly impact the premiums charged. Buildings and equipment that are newer and in better condition tend to be less risky for insurers, so they are generally offered lower premiums. Conversely, older buildings and equipment that may have more wear and tear are seen as being more at risk for accidents or damage, so they tend to be charged higher premiums.

Security and safety considerations 

One factor that affects commercial property insurance premiums is the added security and safety features that have been installed. For example, a business with an alarm system, a security guard, smoke detectors, sprinkler systems, fire extinguishers and surveillance cameras will usually pay less for insurance than a business that has none of these features.

Coverage options 

The premiums for a commercial property insurance policy vary depending on the number and type of endorsed policies. The more endorsements, the higher your risk profile becomes, which drives up your premiums. For example, a business that has a theft or content endorsement will pay a higher premium than one that does not have this endorsement.