Commercial insurance helps businesses, including farms and ranches, pay to repair or replace buildings and other property damaged or destroyed because of fire, storm, or other things covered by your policy.
It also pays to replace stolen or lost property.
Business owners can buy commercial property insurance regardless of whether they own, rent, or lease a building. If you rent or lease a building, consider tenant coverage that will insure your on-premises property, including machinery, furniture, and merchandise. A building owner’s policy doesn’t typically cover the contents of the building that belong to you. The cost of tenant coverage is usually less than building coverage because the policy only covers contents.
Businesses with multiple locations can be covered under a single policy, unless they have different functions and different risk profiles. This could be the case if your business has an administrative office and a separate factory. If your business has operations at multiple locations, ask your agent if you need separate policies.
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Types of Commercial Property Policies
There are three types of commercial property policies in Texas. The policies protect against different causes of damage, commonly called “risks.” These include fires, lightning storms, windstorms, or damage caused by vehicles and civil commotion.
Be sure to read your policy carefully. You may need to buy additional coverages or specialized policies -- such as flood, windstorm, or crime coverage-- to fully protect your business.
Basic form policies typically cover common risks.
Broad form policies typically cover the common risks in addition to water damage, structural collapse, sprinkler leakage, and damage caused by ice, sleet, or weight of snow.Special form policies cover all types of risks except those the policy specifically excludes.
Common exclusions include damages from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.
Most commercial property policies cover damage from windstorms except in counties on the Texas coast. However, companies may exclude
windstorm and hail coverage from policies they sell in the 14 coastal counties and parts of Harris County on Galveston Bay. If your business is in one of Texas’ coastal counties, you’ll need a separate windstorm policy. (Refer to the section on windstorm coverage for more information.)
Replacement cost and actual cash value coverage
Commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both. Replacement cost coverage will pay to replace your property with new property of like kind and quality, up to the policy’s dollar limit. An actual cash value policy will pay the replacement cost of the property minus depreciation due to age and normal wear and tear. Although replacement cost coverage is more expensive than actual cash value coverage, it might better ensure that your business fully recovers after a loss.
Commercial Property Coverages
Commercial property policies are not standardized in Texas. Insurance companies must meet minimum state requirements but may develop their own policies. As a result, coverages and policy terms may vary by insurance company and by policy.
Commercial multi-peril (CMP) policies combine multiple coverages -- such as commercial property, liability, inland marine, and commercial auto to provide full protection with a single policy. It’s typically cheaper to purchase a CMP policy than to purchase the coverages individually.
Business owner program (BOP) policies are a common type of commercial policy primarily for small businesses. BOP policies combine property and liability coverage in one policy.
Commercial property policies provide various types of coverage, either as part of the base policy or through policy endorsements. Endorsements expand or amend a policy’s coverages and usually increase your premium. You can buy certain coverages as separate stand-alone policies.
Following are some typical commercial property coverages:
Building occupied by the insured coverage insures a building that you regularly use but do not own. This coverage can be important if you use or borrow a building that is critical for your operations. Newly acquired or constructed buildings coverage insures a new building if you add it to your policy within a certain amount of time.
If you don’t notify your insurance company within the time period – usually 30 days – your policy won’t cover the new building. Commercial property policies generally 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.
Off-premises property coverage covers your property located off site. Some policies might not cover off-premises property or may provide only limited coverage. You can usually buy an endorsement to cover off-premises property. If you can’t buy an endorsement, you may have to buy a separate policy.
Business interruption coverage pays for the income you’d lose if you 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 may be able to buy an endorsement to increase this coverage. 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 it with an endorsement. Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery. Coverage is generally only for machinery listed in the policy and to any subsequent losses, such as when a boiler explosion or water heater leak causes damage to other property. You can usually purchase this coverage as either 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.
Other Coverages to Consider
Depending on the type of business you own and where it’s located, you might want to consider additional coverages to ensure you’re protected.
You can buy several types of coverage to protect your business from crime. Common crime coverages include:
-Loss of glass and money due to theft pays for damage to glass and for a theft of money resulting from a break-in.
-Robbery and safe burglary (property other than money) is a more limited form of coverage that does not include a loss of money or securities.
-Forgery or alteration protects your business against forgery or alteration of checks, drafts, promissory notes, or other types of payments.
-Theft, disappearance, and destruction coverage insures money, securities, and other property against losses, both on your premises and off
premises in the custody of an employee or messenger.
-A policy may pay losses from crime on either a loss sustained or discovery basis. Loss sustained coverage pays for losses that happened during
the policy period, and discovery coverage pays for losses that happened at any time. Both types of crime coverage require that you learn about
the crime during the policy period or extended reporting period.
Some insurance companies include flood coverage in their commercial property policies for areas with a low flood risk. However, most flood insurance is available only through the National Flood Insurance Program (NFIP). Some insurance companies may provide flood coverage in addition to NFIP coverage.
To qualify for NFIP coverage, your business must be located within an NFIP-participating community. These communities have adopted federal
building and floodplain management programs to reduce the likelihood of flood damage. Special flood hazard areas are areas within NFIP communities
that are at high risk for flooding. NFIP requires all structures within these areas to have flood insurance.
Note: More than a fourth of all floods in the United States occur in areas designated as low-to-moderate risk. You should consider flood insurance even
if your business is outside a hazard area.
Windstorm and Hail Insurance along the Texas Coast Insurance companies may exclude windstorm and hail coverage from commercial property policies
for businesses in one of Texas’ 14 coastal counties or within certain areas of Harris County. If your business is in one of these areas, you will have to buy
windstorm coverage through the Texas Windstorm Insurance Association (TWIA), which is the state’s insurer of last resort for windstorm and hail coverage.
Buildings constructed, repaired, or remodeled prior to January 1, 1988, are automatically eligible for TWIA coverage. Those constructed,
repaired, or remodeled after that date must pass a state inspection and receive a Certificate of Compliance (Form WPI-8) before TWIA can issue windstorm and hail coverage.
Texas Department of Insurance (TDI) inspectors will inspect your structure free of charge if you notify your local TDI Windstorm Inspection Office before beginning
construction or repairs. The inspection will occur sometime during the course of the work. If you request a windstorm inspection after starting construction or repair
work, you must hire a Texas-licensed professional engineer approved by the commissioner of insurance to inspect your building.
You can get a list of approved professional engineers on the TDI website and at Windstorm Inspection Offices.
Understanding Commercial Property Rates
Insurance companies use a process called underwriting to evaluate the likelihood that a business will file a claim. The greater the likelihood, the higher
the premium will be. If an insurance company determines that your business is at a high risk for a loss, it may decline to issue you a policy.
Fire risk is typically the primary factor that determines a business’s commercial property rates. State-licensed fire inspectors contract with insurance companies to
perform inspections as part of the underwriting process. Inspectors use a standard rating system and weigh five factors to determine a structure’s fire rating.
The Five Factors are:
-Construction materials. Buildings made of potentially combustible materials will have higher premiums, while those made of fire-resistant materials could earn a discount. Additions to an existing structure might negatively affect a fire rating, so it’s a good idea to consult with your agent or insurance company before remodeling.
-Internal structural elements can also affect a fire rating. Using wood partitions, floors, and stairways in an otherwise fire-resistant building will likely nullify any rate reduction. Fire-resistant interior walls, floors, and doors can help maintain a good fire rating.
-Buildings in cities or towns with good fire protection, as assessed by the Texas Commission on Fire Protection, typically cost less to insure
than buildings outside a city where fire protection may be limited.
Occupancy. A building’s use also affects its fire rating. An office building will likely rate favorably. A restaurant or auto repair shop will likely rate less favorably.
One relatively hazardous occupant will negatively affect the fire rating of an entire building. If your business is in a building with a more hazardous occupant, your premiums will be higher.
-Fire protection measures. Automatic sprinklers can reduce a building’s fire rating by as much as 50 percent. Buildings with fire extinguishers and automatic alarms and those within 500 feet of a standard fire hydrant will generally have lower ratings.
- Nearby hazards increase a building’s fire risk. Proximity to external fire hazards, such as a lumberyard or oil storage tank, will affect a fire rating even more. Internal exposure risks might include cluttered buildings and grounds, heavy mechanical or electrical equipment, or on-site storage
of volatile materials.
Shopping for Commercial Property Insurance
Minimize all possible hazards before applying for coverage. Examine your business’s premises and operations carefully to eliminate anything that could increase the likelihood of an insurance claim. Improving employee safety, security, and inventory management might reduce the amount you pay for commercial property insurance and other types of coverage, such as workers’ compensation and general liability insurance. Most insurance companies also offer loss-control or risk-reduction services. Contact your agent or insurance company for help identifying and eliminating potential hazards.
Get quotes from several companies. When comparing prices, make sure you’re comparing policies with similar coverage. A cheaper policy might also provide less coverage. Keep shopping if an insurance company says it won’t cover your business. Insurance companies have different underwriting criteria. If one company turns you down or is too expensive, another may be willing to issue coverage or offer a lower premium. Consider higher deductibles. Almost all commercial property policies have a deductible, which is the amount you must pay toward the cost of a claim
before the insurance company will pay. The higher your policy’s deductible, the lower your premium. Keep in mind that you’ll have to pay more out of
pocket if you have a claim. Your policy will also have a policy limit, which is the maximum amount the insurance company will pay for any covered loss.
Verify your agent’s and insurance company’s licenses. Agents and insurance companies must be licensed to sell commercial property insurance in Texas.
An unlicensed insurance company may not meet the state’s minimum financial and regulatory requirements, meaning the company may not have the financial
resources to pay your claim.
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