Commercial property insurance helps businesses, including farms and ranches, pay to repair or replace property that was damaged by a fire, storm, or other event covered by the policy. It also pays to replace stolen or lost property.
Types of Commercial Property Policies
There are three types of commercial property policies in Texas. These policies protect against different causes of damage, known as “perils.”
- Basic form policies cover common perils like fires and storms.
- Broad form policies cover common perils, as well as water damage; structural collapse; sprinkler leakage; and damage caused by ice, sleet, or weight of snow.
- Special form policies cover all types of perils except those the policy
specifically excludes. Typical exclusions include damages from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.
Read your policy carefully. You may need to buy additional coverages or separate policies — such as flood, windstorm, or crime coverage policies — to fully protect your business.
You can buy a single policy to cover a business with more than one location, unless the locations have different functions and risk profiles. For example, you might have an administrative office at one location and a factory at another. If your business has operations at multiple locations, ask your agent if you need separate policies.
Note: Except in counties on the Texas coast, most commercial property policies cover damage from windstorms. Insurance companies may exclude windstorm and hail coverage from policies in the 14 coastal counties and parts of Harris County on Galveston Bay. If your business is in one of these counties, you might need a separate windstorm policy.
If you rent or lease a building, the property you own inside the building usually won’t be covered by the building owner’s policy. You’ll need to buy tenant coverage to insure your machinery, furniture, and merchandise. Tenant coverage usually costs less than building coverage because the policy covers only the contents of the building, and not the building itself.
Replacement Cost and Actual Cash Value Coverage
Most commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both.
- Replacement cost coverage will pay to rebuild or repair your property, based on current construction costs. Replacement cost is different from market value and doesn’t include the value of your land.
- Actual cash value coverage will pay only the current value of the damaged part of your property, which is the cost to rebuild or replace your property minus depreciation. Depreciation is a decrease in value because of wear and tear or age. If you only have actual cash value coverage and your business is destroyed, your insurance company probably won’t pay you enough to completely rebuild
Commercial Property Coverages
Commercial property policies aren’t standardized in Texas. This means coverages and policy terms will vary by insurance company and by policy. If a policy doesn’t provide all the coverage you need, you can usually buy endorsements to add or increase coverage. Endorsements usually raise your premium.
The following are some typical commercial property coverages:
- Building occupied by the insured coverage insures a building that you regularly use but don’t own. This coverage can be important if you lease or borrow a building.
- Newly acquired or constructed buildings coverage insures a new building if you add it to the policy in a timely manner — usually 30 days after acquisition or the construction begins. Commercial property policies usually only cover buildings named in the policy.
- Employees’ personal property coverage insures your employees’ personal property if the property is on your premises. Generally, you must buy this coverage as an endorsement if you need more than a limited amount of coverage.
- Off-premises property coverage covers your property located off site. If a policy doesn’t cover off-premises property, or provides only limited coverage, you might need an endorsement or a separate policy to cover it.
- Business interruption coverage pays for the income you’d lose if your business is damaged and you can’t perform your normal business operations.
- Extra expense coverage pays any additional costs to return your business to normal after it’s damaged.
- Valuable papers coverage provides limited coverage for your business records and other valuable papers. You might be able to increase the coverage amount with an endorsement.
- Ordinance or law coverage pays additional costs to repair or rebuild a facility to current building codes after it’s damaged. Many policies provide limited ordinance coverage, but you can increase the coverage with an endorsement.
- Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery. Coverage is usually only for machinery listed in the policy and to losses caused by malfunctions of boilers or machinery, such as when a boiler explosion or water heater leak causes damage to other property. You can buy this coverage as an endorsement or a separate policy.
- Inland marine coverage insures goods in transit by land, air, or inland waterways. It also covers projects under construction and transportation and communications structures, such as bridges, tunnels, and communications towers.
Commercial multi-peril (CMP) policies combine several coverages — such as commercial property, liability, inland marine, and commercial auto — into a single policy. It’s usually cheaper to buy a CMP policy than to buy the coverages individually. Business owners (BOP) policies combine property and liability coverage in one policy. BOP policies are primarily for small businesses.