This article was reviewed for factual accuracy by Brian Halbert CFP
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Commercial property insurance or business property insurance covers the replacement and repair of certain assets if a covered event such as fire, theft or vandalism occurs. It is an especially important policy because many small companies and startup businesses lack the money to pay for the replacement of what is damaged during business hours.
Even though most businesses will be protected in the event of a major catastrophe, there are some risks to businesses that are not insured for. This is where Commercial Property Insurance comes in. In this guide we discuss how much one should expect to pay for commercial property insurance. So what is the average cost of commercial property insurance?
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How Much Does Commercial Property Insurance Cost?
Small business owners pay a median annual premium of $755 per year or $63 a month, for a commercial property insurance policy with a policy limit of $60,000. The median deductible amount they pay is around $1,000. A good rule of thumb is to expect to pay about $1,000 to $3,000 for every $1MM in coverage per year. Just over 15% of small business owners pay less than $500 annually and most small business owners have an annual premium between $500-$1,000.
The reality is, the only way to know what your commercial property insurance premium will be is to get a personalized quote. That’s because the cost of your insurance policy will depend on several factors that are specific to your business and property.
What Influences the Cost of Commercial Property Insurance?
As with most small business insurance policies, the cost of your commercial property insurance coverage will be influenced by several considerations specific to your business. Some of these factors include:
- Building Construction: The safer and more recent your building’s construction was, the less you’ll probably pay for insurance. This includes more fire-resistant materials, and new wiring, plumbing, and/or HVAC system.
- Building Usage: The way the building is used will impact insurance costs. As the number of occupants and risk level of the business increases, so will your premium.
- Safety Measures: Having fire alarms, smoke detectors, a sprinkler system, or even just being near a fire hydrant or close to the fire station could all lower your risk and therefore your cost.
- Neighborhood: The crime rate in the surrounding area will affect your insurance rate. The more risk the area presents the higher the premiums will be.
- Property Value: How much the property is worth will affect the cost of repairs if there’s any damage.
- Insurance Limit: How much the property is insured for will determine the maximum amount the insurer will be expected to pay.
- Deductible: Insurance premiums often go down as the deductible rises.
- Bundling: Combining your commercial property insurance with other kinds of insurance policies, like with a business owner’s policy, can often cost less than the price of individual policies combined.
How Much Does a Building Owner Insure a Property for?
Generally, it’s best to insure your property for the entire value. For example, if you have a property worth $100,000 you should have $100,000 worth of commercial property insurance and if your property is valued at $1 million you should have $1 million of coverage. While that is the best way to ensure you have enough insurance to cover any and all damages, full coverage isn’t required.
Many insurance companies have what’s known as a coinsurance provision though, which requires you to have enough insurance to cover a certain percentage of the property’s value, typically 80%, or face a penalty in the event of damage. The penalty will reduce your payout by the same percentage your insurance amount fell short. For example, if your property is worth $100,000 and your insurance company requires a minimum of 80% coverage but you only insure the property for $70,000, you are 10% short of their coinsurance requirement, so they may reduce your payout by 10% as a penalty.
Is Commercial Property Insurance Worth the Cost?
The answer is yes. Commercial property insurance covers your building and contents in the event of a fire, theft, or other loss. Without proper commercial property insurance coverage, you not only lose the damaged or stolen property, but you have to pay to replace it out-of-pocket.
You wouldn’t own a home without homeowners insurance, so why do the same to your place of business. If you can’t afford to do so, you could lose your business. Factors that make property insurance necessary often can’t be predicted, controlled, or avoided. Why take that chance?
Who Should Get Commercial Property Insurance?
Any business owner should have commercial property insurance no matter the type of business. Often times, home business owners believe they don’t need commercial property insurance because they have homeowner’s or renter’s insurance. However, if you use any equipment, even a computer, your existing policy may not cover the loss. It’s important to have the right kind of coverage and homeowner’s and renter’s policies often don’t cover losses related to home-based businesses.
How to Buy Commercial Property Insurance
our business isn’t something you want to gamble with. Having proper coverage for your business is imperative. Shopping around is the best policy when buying an insurance policy. Different insurance companies are going to give you different quotes based on your unique property. In some states an insurance carrier can be more or less expensive, so it’s important to look around. To find out which policies your business should have and get the best possible price, contact an insurance marketplace like CoverWallet.
General Liability Insurance vs. Commercial Property Insurance
General liability insurance and commercial property insurance are both crucial for any small business owner to have. They cover very different things however.
General liability insurance shields you from litigation that stems from injuries or accidents that occur in or as a result of your business. For example, say you have a general store and a customer slips and falls, injuring their wrist. If they choose to sue you (regardless of who is at fault) your liability insurance can cover any legal expenses you incur. If you were found to be negligent, the amount you are liable for would come out for your general liability policy,
Property insurance on the other hand just covers you if your place of business were to be burgled, burnt down or faced other disasters. Property insurance essentially is meant to give you a lifeline and cover damage to your business if you can’t afford them out of pocket.
