Types of Property Insurance Coverage for Businesses

Many Types of Property Insurance Can Be Combined On One Policy

Insurance adjuster inspecting cracked brick wall
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Commercial property insurance protects your business from financial losses caused by damage to its physical assets. It's a broad category that includes direct damage, time element, inland marine, and crime insurance.

Direct Damage Insurance

Direct damage coverage is what typically comes to mind when a business owner thinks about property insurance. It covers the cost of repairing or replacing physical property that has been damaged or destroyed by a covered cause of loss. Most small businesses obtain direct damage coverage by purchasing a commercial property policy or business owners policy (BOP). Both cover loss or damage to property owned by the business such as buildings, production machinery, office furniture, and stock.

Most commercial direct damage insurance is written on all-risk policies. While they don't cover every risk, all-risk property policies are relatively broad as they cover loss or damage by any accidental cause that isn't specifically excluded.

Standard all-risk policies don't cover losses caused by catastrophic perils like flood and earthquake. Business owners can obtain flood or earthquake coverage via an endorsement added to their property policy or by purchasing a separate flood or earthquake policy. A third option is to purchase a difference-in-conditions policy.

Most homeowners policies afford very limited coverage for business-owned property. Speak to your homeowners insurer before relying on your policy to cover a home-based business.

Time Element Coverages

Another major category of commercial property insurance is time element insurance. The name "time element" derives from the fact that losses are tied to the period of time required to repair or replace damaged property. Losses occur when property cannot be used because it has been damaged or destroyed.

The two most common types of time element insurance are business income and extra expenses coverages. These may be purchased individually under separate forms or in combination under a single form. Business income insurance covers income your company loses when your business premises is damaged by a covered peril and your business must reduce or suspend its operations. Extra expense insurance covers extra costs (meaning costs over and above your normal expenses) your business incurs to continue operating while property that has been damaged by a covered peril is replaced or repaired. 

Another type of time element insurance is leasehold interest coverage. It covers a financial loss you suffer as a tenant when your lease is cancelled due to direct damage to the leased premises by a covered peril. This coverage can afford valuable protection if the rent you are paying under your lease is considerably less than the market rate.

Time element coverages are usually written in conjunction with direct damage insurance. They may be included in the same form or added via an endorsement.

Inland Marine Insurance

Commercial property and BOP policies are intended to cover property situated at your premises. As a result, most afford little coverage for property located off-site. Construction companies, landscapers, cleaning companies, and many other businesses own property that they use away from their premises. To insure their off-site property, businesses can purchase inland marine insurance.

Inland marine insurance covers equipment, machinery, or other property that's transported over land. It differs from ocean marine insurance, which covers ships and cargo traveling on the high seas. Inland marine policies are often called floaters because they cover movable property.

Most inland marine coverages can be added to a commercial property or package policy via a separate form or endorsement. Here are some examples:

Crime Insurance

Commercial property insurance also includes crime coverages. While most commercial property policies cover losses caused by theft, they exclude thefts committed by employees. Moreover, most policies exclude money and securities under the definition of "covered property."  Businesses can protect themselves against employee thefts and financial crimes by purchasing crime insurance. Here are some examples.

  • Employee Theft Coverage. Protects businesses against the theft of money, securities, and other property by an employee.
  • Money Orders and Counterfeit Paper Currency. Covers a loss that occurs when a business accepts a money order issued (or purportedly issued) by a post office or express company. Also covers a loss a business incurs when it accepts counterfeit paper currency ( U.S. or Canadian).
  • Computer Fraud Coverage. Protects businesses against the theft of property, including money and securities, by a thief who uses a computer to transfer covered property from the insured's premises or bank to another person or place.