Property insurance protects small business owners from losses due to damage to physical space or equipment and as a result of theft. For insurance purposes, a business' property includes the physical building in which it resides, as well as its other assets.
All of the following, owned or leased, can be considered business property:
- The actual building
- Furniture, equipment and supplies
- Computers and other data processing equipment
- Valuable papers, books and documents
- Artwork and antiques
- Television sets, VCRs, DVD players, satellite dishes
- Signs, fences and outdoor property not attached to a building
- Non-tangible items such as trademarks and copyrights
There are three types of property insurance plans:
- Basic form, which includes losses resulting from a fire, lightning, windstorm, hail and explosion, plus the cost of removing property to protect it from further damage.
- Broad form, which includes basic plus extended coverage for other types of perils, such as a roof collapse (e.g. caused by snow or ice), riot and civil commotion, etc.
- Special form, which includes basic and broad, and covers all direct physical losses except conditions specifically excluded as listed in the policy.
With property insurance you can buy either actual cash value or replacement cost insurance.
Actual cash value insurance reimburses you for the value of lost, damaged or stolen goods after depreciation is taken into consideration. Replacement cost insurance reimburses you the amount it would take to replace, rebuild or repair damages with materials of similar kind and quality, without deducting for depreciation.
Business Interruption/Continuation Insurance
This type of insurance covers lost earnings due to a circumstance covered by one of the property insurance plans you purchased, such as a fire or theft that shuts down your business for an extended period of time. Business interruption/continuation insurance covers expenses associated with running a business, such as payroll and utility bills, based on the company's financial records.
Business interruption/continuation coverage can be added to a property insurance policy or purchased as part of a package insurance product.
Tips & Considerations
It's important to have your property value assessed before, and periodically thereafter, any type of property insurance coverage is purchased. Be sure to keep copies of receipts for equipment, furniture and other valuable items in the event your premises are destroyed. Keep physical photos of your property in another location as well as digital pictures that you store on your computer or with a Web service.
High-value specialty items, like antiques and artwork, should also be assessed by a reputable appraiser before you buy property insurance. These types of items are usually covered for an agreed-upon amount before a policy is written. It is important to specifically tell your agent about these specialty items so that the correct coverage is provided.
If you lease your building or offices, do not rely on your landlord to provide coverage for your business property. The building will typically provide insurance only for the basic structure and common areas. Read your lease carefully - there may be other requirements or penalties in the fine print. Check to see what is and is not covered so that you are fully protected if something happens to your property and equipment or if someone decides to sue you for damages caused by you or one of your employees.
A property insurance policy generally includes a statement specifying the limit of liability. Be sure you understand how it works. The limit of liability is defined as the maximum amount an insurer will pay for a covered loss. Typically, the insurer will bear responsibility up to a certain limit, as stated in the policy, with the policyholder liable for amounts above that limit.
Costs for business interruption coverage are tied to the type of small business you operate. For example, less business interruption coverage would be needed following a fire at a travel agency versus an art gallery, assuming that it would take more time for an art gallery to recover from a fire.
Even if you purchase business interruption coverage, make sure you have sufficient funds to tide you over the first few days. This type of coverage typically doesn't kick in for a specified time period after a disrupting incident occurs. The time period will be listed in your policy.
Tips for Lowering Property Insurance Costs:
Review all insurance policies annually and note any changes that may affect your coverage costs. For example your premiums could be impacted by the addition or reduction of employees, clients product offerings or inventory; alterations to your building; or changed state regulations.
Find out how plans differ to make sure you are purchasing the best policy for your particular business and at a competitive price.
Claim a tax deduction for your premiums on fire, casualty and burglary insurance.
Avoid purchasing overlapping policies. Read the terms carefully to make sure you are not covered for the same item in two separate policies. This type of policy examination also helps you ensure that you are not missing crucial coverage in other areas.
NOTE: To help with claims processing, document all your business assets and keep detailed records of all your insurance policies, as well as copies of premiums you've paid and any documents concerning losses and recoveries.