Takeaways
- Business property insurance covers buildings, inventory, equipment, and more.
- Lenders and landlords require owners and renters to maintain active coverage.
- Average monthly property insurance premiums are $67 for small businesses.
- Insurance premiums range based on property quality, location, and cost.
- Property insurance is used by businesses ranging from mom-and-pop home-based shops to large-scale manufacturing and service-based companies.
What Is Business Property Insurance?
Business property insurance is commercial insurance coverage designed to provide financial relief if your company's property or physical assets are damaged or ruined. Covered risks include fire, theft, vandalism, and certain weather-related catastrophes.
If you run a small business, you know how valuable, productive, and expensive your assets are to your company. Business property insurance covers assets like machinery, equipment, inventory, furniture, computers, essential materials, and entire buildings or parcels of real estate. Protecting these assets with insurance coverage allows your business to hedge against avoiding massive financial loss.
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Maintaining an active business property insurance policy is critical to many growing startups' risk management strategy. Their policy protects their business, owners, shareholders, and operators. Importantly, it ensures the company or nonprofit can repair or replace damaged property quickly to minimize productivity loss and downtime.
- Average Cost: According to Insureon, startups and small businesses pay average premiums of $67 per month, or roughly $800 annually, for commercial property insurance. [1]
Insurance coverage frequently extends to a business's commercial properties, assets owned by the company, and leased offices or workspaces. Depending on the policy, equipment, inventory, and assets stored off-site can also be covered under the coverage umbrella.
Many businesses combine their property insurance with other types of insurance. For example, you can combine your property and liability insurance as part of a broader business owner's policy. Whether your business operates from a small office or a large warehouse, factory, or high-rise, getting property insurance is essential for protecting the success of your business.
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Does Your Business Need Property Insurance?
Regardless of industry or size, most businesses should have business property insurance. Here are examples of the companies that need an active policy:
- Companies that own buildings they operate from. If your business owns or leases physical space - office, manufacturing facilities, warehousing - property insurance is a must-have for safeguarding your company's investment in those assets.
Without adequate property insurance, your business could go bankrupt, having to pay damages caused by disasters like explosions, fires, or lightning. Repairing a broken window out of your petty cash fund is one thing, but rebuilding your entire storefront or renovating your office space without insurance could mean the end of your business. (Read about the 9 Steps to Start Your Own Business).
- Companies that lease office space. If you rent your office, your landlord and commercial leasing firm will likely require you to carry minimum property insurance. The level of required coverage is usually defined as part of your rent agreement. (Read about the 5 Great Business Ideas to Start Now).
- Companies with real estate loans for properties. Banks and credit unions can also protect their investments by requiring borrowers to get property insurance. For example, if you got a traditional business loan to start a company or lease equipment or property, your lender probably requires having an active property insurance policy.
- Companies run from home. Freelancers or other businesses run from your home should also get business property insurance. Homeowners insurance can cover some damages, but a cap is usually applied to business equipment. (Read more about the Top 10 Freelance Jobs).
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How Business Property Insurance Works
Like most other insurance policy structures, business property insurance pays cash for covered losses. This cash infusion allows companies to rebuild, purchase new properties, or acquire new inventory to keep their businesses running.
When you buy business property insurance, you first need to work with an agent or broker to determine the type of property you want to be insured, the value of your properties and assets, and your desired level of coverage. From there, the insurance company assesses what your insurance policy will cost. You will need to pay monthly insurance premiums to keep your policy active.
When a covered event occurs, your business starts the claims process. The procedures involve listing damages and providing supporting documentation regarding estimated costs to repair, restore, or replace your property. When the claim is approved, the insurer reimburses the business in accordance with the policy terms. Reimbursement typically involves writing a check to the company to cover repair costs or providing cash for replacement.
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What Does Business Property Insurance Cover?
Business property insurance policies cover a wide range of physical assets that are critical to business operations. Your policy will contain a "causes of loss" section that details the events covered by it.
Here are typical items a business insurance policy covers:
- Business-owned Buildings
- Fences, lighting, and other fixtures
- Leased offices
- Inventory
- Warehouses
- Machinery
- Equipment and supplies
- Furniture and fixtures
- Computers, tablets, and other electronics
Most policies will also have a provision for loss of income following a loss event if business operations are disrupted for long enough due to property damage. Some insurance companies only cover this through business income insurance.
Income insurance can be important for businesses to recover lost revenue because even though you can get back up and running quickly, in many cases, you cannot get back the time and revenue lost during your downtime. Check your policy to be sure or ask your agent or broker if it is available through an insurance rider.
Smart Tip:
Business property insurance works like other insurance products. If a covered event occurs, the business usually has a deductible it needs to cover before the policy kicks in. Ensure your business always has enough cash or access to credit to cover your deductible.
What Business Property Insurance Doesn't Cover
Even though business property insurance might seem incredibly comprehensive and far-reaching, it does not cover everything. Here is what business property insurance doesn't cove
- Natural Disasters: Most standard property insurance policies exclude specific types of natural catastrophic damage, such as hurricanes, earthquakes, or wildfires.
- Wear and Tear: Business property insurance does not cover normal wear and tear on equipment, buildings, or machinery.
- Maintenance Costs: Regular costs to maintain your property, like cleaning fees or equipment checkups, are not included.
- Intentional Acts: Businesses need additional coverage for employee sabotage or theft. Fraud or robbery from employees is usually not covered and is often excluded from policy coverage.
- Workplace Injuries: Liability for injury and damage to third parties is usually excluded since that is covered by the property's general liability insurance.
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How to Get Business Property Insurance
Businesses assessing their level of insurance coverage should take a stepwise approach to the process. There are plenty of property insurance carriers to shop for, but the level of coverage you want primarily depends on your business needs. Here are the steps to take as you evaluate your business's unique needs:
1. Take an Inventory of Property and Assets: List the properties you want to protect. Your list should include the physical building structure and additional equipment, inventory, intellectual property, and other assets housed in your office or warehouses.
2. List Desired Coverage: You also need to consider the various types of risks your business offices, rental properties, and warehouses are protected from. For example, this could include the likelihood of fire or smoke damage, inventory threats, or lightning strikes.
3. Shop for Quotes: After thoroughly assessing your business needs, you can start sourcing quotes from insurance providers.
4. Use a Broker: It is common for small businesses to work with an insurance broker who can provide accurate comparisons of several providers at once. Vetting carriers and coverage differences help get you the right policy. Your broker can customize your policy to ensure your organization has “rightsized” coverage.
5. Review Your Policy: Before signing any coverage contract, make sure that you understand all aspects of your policy. It's a smart move to double-check the terms, coverage limits, exclusions, and deductibles. It is important to note that if you are getting a comprehensive business owner's policy, check the specifics on all aspects of the policy.
6. Execute Your Policy: Once you have reviewed and calibrated your contract, you can feel great about your policy. The next order of business is to choose an affordable policy and sign your contract. From there, you will begin paying monthly insurance premiums.
Smart Summary
Your business probably needs business property insurance. Whether you run your business out of your house, own commercial real estate, or lease an office space, securing property insurance will protect you from unexpected losses. Property insurance will pay you for damaged or destroyed buildings, equipment, machinery, computers, and electronics. Getting proper insurance coverage is a smart money move.
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(1) Insureon. Commercial Property Insurance Cost. Last Accessed January 13, 2025.
