Business & Commercial Insurance Information

Commercial property insurance helps businesses, including farms and ranches, pay to repair or replace buildings, associated structures, and contents damaged by fire, storms, theft, and other events outlined in the policy.

By HAmza HAsnain
 
This publication provides general information about the kinds of commercial property coverage that are available in Texas. It can help you evaluate different commercial property policies, understand how rates are determined, and ask the right questions when shopping for insurance. However, keep in mind that it´s not a substitute for the policy itself. You should review your policy carefully to know your specific coverage.

Overview

Commercial property policies may be purchased by businesses that own or lease their buildings. While it is common for property landlords to maintain some type of property insurance coverage, it´s important for a tenant business to understand that such a policy usually covers only the building owner´s property, such as damage to the building or structure. Loss or damage to the tenant´s property, even though it´s located in a covered building, generally will not be covered. Therefore, businesses operating on leased property will need to purchase their own policies to cover their property.
The rules and procedures for tenant commercial property policies are essentially the same as those for owned commercial property. An insurance company will still evaluate the same factors, such as a structure´s location and construction materials, to determine the likelihood of a property loss. The cost of tenant coverage will generally be significantly less than for owned property coverage, however, as the policy will only extend to the leaseholder´s on-premises property and not the actual structure.
Typically, businesses operating on multiple premises are covered by a single policy. In certain instances, such as when two business locations serve widely different functions and have different risk profiles, separate policies may be needed. This may sometimes be the case when a business insures both an office location and a factory, for example.
A commercial property policy may pay based on either the "actual cash value" or "replacement value" of a loss. An actual cash value policy will pay only the amount of the property´s worth at the time of the loss – in other words, the value of the property after depreciation due to such factors as age and normal wear and tear are subtracted. A replacement value policy will pay the amount needed to purchase new property of like kind and quality after a loss. In general, a replacement value policy better ensures that a business can recover fully after a significant loss. Replacement value policies are typically more expensive than actual cash value coverage, however, because the policy limits should reflect the cost to replaced damaged property with new property.
Almost all policies have a "deductible," which is an amount the business must pay out of pocket toward the cost of a claim before the insurance company will pay. Generally, the higher a policy´s deductible, the lower its premium will be, as the policyholder is accepting a greater share of the cost of any eventual claims. Most policies will also include a "policy limit," which is a maximum amount the insurer will pay toward any covered loss.
Insurers use a process called "underwriting" to evaluate the likelihood that a given policyholder will file a claim for a loss. The greater the likelihood, the higher the premium will be. If an insurer determines that a business poses too great a risk of a loss, it may decline to issue a policy entirely. If your business is declined for coverage, keep shopping; companies have their own criteria for determining whether to issue coverage and the rate to charge. If one company turns you down or is too expensive, another may be willing to issue coverage or offer a lower premium. There may also be certain steps your business can take to lower its risk and either qualify for coverage or get a lower rate.
Different types of commercial property policies protect against different risks, or "perils." It´s important to understand which types of losses a policy does and does not cover. A commercial property policy will almost never cover any loss that is either not specifically included in the policy language or is specifically excluded. Therefore, be sure you read a policy carefully before you purchase it. You may need to buy certain specialized policies, such as flood, windstorm, or crime coverage to be protected from those particular losses.
Commercial property insurance is not standardized in Texas. This means that, beyond certain minimum requirements, insurance companies have a great deal of flexibility to develop their own policies. As a result, the coverage provided by one insurer´s policy may differ substantially from that of another. When shopping for commercial property insurance, be sure to evaluate the costs and coverages of the policies you´re considering carefully.

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