Commercial Property Coverage – 3 Key Terms
While there’s a number of commercial property coverage terms, this brief overview focuses on just three.
Commercial Property Coverage Terms – 3 That You Should Know
If you are looking to renew or purchase commercial property coverage, understanding common industry terminology is critical. Brokers, insurers, claims adjusters, underwriters and other professionals use very specific terms when describing industry products and services. When you complete a commercial property insurance application or review a policy, terms to keep in mind include:
- Named Perils Coverage. IRMI notes that this is “a property insurance term referring to policies that provide coverage only for loss caused by the perils specifically listed as covered. It contrasts with all risks coverage, which applies to loss from all causes not specifically listed as excluded.” 2
- Statement of Values. This is the total value of property exposures and is used by underwriters to calculate a policy premium. A statement of values should be completed by the business with the support and guidance of a broker and/or insurer and submitted.
- Business Interruption Worksheet. Also known as a business income worksheet, IRMI defines this as “a form used to estimate an organization’s annual business income for the upcoming 12-month period, for purposes of selecting a business income limit of insurance. The selected percentage, or multiple, of the organization’s estimated annual business income for the upcoming 12-month period should be based on how long it would take to replace all damaged property and resume operations in the event of a worst-case loss. For some organizations, this period could exceed 12 months.” 3
Why Are Commercial Property Coverage Terms Important?
There are many subtle and important differences between commercial property insurance policies. When completing a statement of values and business interruption worksheet as part of your commercial property insurance application, it’s important to understand what’s covered as well as what’s excluded.
According to its glossary, the International Risk Management Institute (IRMI) defines a commercial property policy as “an insurance policy for businesses and other organizations that insures against damage to their buildings and contents due to a covered cause of loss, such as a fire. The policy may also cover loss of income or increase in expenses that result from the property damage.” 1
Related Matters: Real Canadian Business Claims
Business leaders use commercial property coverage to safeguard their bricks and mortar location(s), inventory, and/or equipment against potentially catastrophic damage that may result from events such as a fire, flood, earthquake, tornado, or windstorm. This type of insurance policy may be written on a named perils or all risks basis.
What does a commercial insurance policy cover?
A commercial insurance policy is designed for businesses, such as small businesses, partnerships, and corporations. It’s different from a non-commercial insurance policy, which protects an individual’s personal assets, such as their car or house. All businesses are encouraged to purchase a comprehensive commercial insurance policy. It protects their business assets against financial loss arising from liability claims or property damage caused by the business owner or their employees. It also covers repairs or replacements done to the business’s property because of a covered peril, such as a fire or flood.
A commercial insurance policy can offer commercial auto insurance, professional liability insurance, general liability insurance, commercial property insurance, and product liability insurance. It covers expenses for medical bills, legal defence, and settlement awards.
What are the types of commercial property insurance?
Commercial property insurance is also known as commercial building insurance, commercial rental insurance, or business property insurance. You can purchase commercial property insurance if you lease an office space, own commercial equipment, use computers or machinery for business, or conduct business offsite. Your business stays covered for theft, unexpected damages, wear and tear from regular usage, and property left on vacant commercial locations.
Is insurance compulsory for commercial property?
While insurance isn’t compulsory for many commercial properties, property owners sometimes want to see that businesses have insurance before leasing their office space or equipment. It protects property owners against liability and third-party claims should they arise.
If you own commercial property, you should also have insurance to protect your property, equipment, and other commercial assets during business operations. It protects your business property against structural damages caused by unexpected events, such as theft, fires, floods, and windstorms. Insurance helps you mitigate financial loss from potential work-related risks.
How is property insurance calculated?
One of the major factors is the location and the value of the property, including any equipment and detached structures. Insurance companies will look at the neighbourhood and average cost of claims. If you choose to operate in an area with high crime rates, property insurance premiums will be higher.
Insurance companies also look at the estimated value of your property, its replacement costs, and the maintenance of the property. An expensive property or one that costs a lot to rebuild will have a higher premium. In addition, insurance companies like to see that properties are secure and consistently maintained at good quality to reduce their insurance risk.
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Source: 1, 2, 3 IRMI