What is commercial property insurance?
The role of Commercial Property Insurance is to provide critical financial assistance in the event of a loss so that a company can continue to operate with as little disruption as possible. These losses can be from fire, storms, water, and many other causes of loss. Your agent will be able to set down with your company and tailor a commercial property policy that fits your particular company needs.
Commercial Property Coverage should include Building, Business Personal Property, Business income and optional coverage depending on the type of business you are operating. Commercial property can have Replacement cost or Actual Cash Value Property Valuation.
Actual Cash Value
Actual Cash Value is commonly defined as the ‘fair market value’ of your property. This common definition is only an estimate, because the true calculation of ACV is: “Replacement Cost minus depreciation of the property.” To work ACV, you’ll need to know what percent the property has depreciated by, and what the total Replacement Cost is. With those two figures, you simply deduct X% off of the RC value to determine the ACV. Similar to RC, when a total loss happens, you would receive the full ACV amount. However, partial losses aren’t paid in-full. Instead, the amount you’d receive is a depreciated value.
Replacement Cost insures property for the full cost to replace it to the same state it was before the loss. With Replacement Cost, partial losses will be paid in-full, and total losses will result in an entirely new building being built or the property being replaced with a new version. Replacement Cost settlement requires insuring the property for the full cost to replace the property, which should account for the current costs of materials, labor, contractor profit, inflation, and other miscellaneous costs of construction.
Example: You have your building insured for Replacement Cost and it has suffered a total loss. Let’s say the building is worth $100K on the market however, it would cost $200K to rebuild the same building today. Being insured for Replacement Cost, you get a new building built, even though it’s only worth about $100K on the market.
Conversely, let’s say we had the same loss on the same building, but this time, it was insured for Actual Cash Value. The Replacement Cost value is $200K, but your building is older and has depreciated by 60%. The Actual Cash Value is $80K, so that’s what you’d receive. You’d now have to spend extra money to find a similar quality building or downsize.
The difference between ACV and RC is substantial come claim time, but is often overlooked because RC costs more. Make sure to discuss the true value of your building with your agent, and have them help you decide what the best option is for your situation!
Business Interruption Insurance
Business Interruption Insurance (also known as Business Income Insurance) is one of the most valuable insurance coverages available. Property Insurance covers the physical loss or damage to real property, while Business Interruption Insurance covers the loss of income a business sustains when covered cause of loss causes a slowdown or suspension of its business operations. Without business income your business would have no money coming in while reconstruction. This could cause your business to shut down for good.
There is many other coverage available depending on each need and based off the type of business you’re running. Optional Coverage include but not limited to Mechanical breakdown, outdoor signs, outdoor property, spoilage coverage, valuable papers and record and many more that will add value to your policy. Again, have an agent go over all coverage to explain to you how each coverage would help your business in a disaster.