What Your Commercial Property Insurance Policy Can Do

Having commercial property insurance is essential to securing your business's physical assets. Before buying a policy, educate yourself first about the basics of commercial insurance in order to determine what kind of coverage your company needs.

Fundamental Coverage

Commercial property insurance policies have different forms and cover different sets of unexpected events. The most basic policy protects the following business assets and inventory:

  • leased or owned furniture and supplies
  • computers and data
  • records and other pertinent papers
  • office equipment, machinery and fixtures
  • building repairs and improvement
The typical types of perils or events a basic insurance plan covers are:
  • fire
  • damage caused by vandalism, vehicles or aircraft
  • civil disturbances such as a strike or riot
  • explosion
  • natural calamities like lightning and hail
Additional Coverage

When deciding whether to purchase additional coverage, consider the potential misfortunes that could affect your business and whether it makes economic sense to insure against them. For instance, if your business location is in an earthquake-prone area, you should strongly consider buying insurance to protect your business against the occurrence of one. Although wider coverage can increase your premium, it will protect you if your business is affected by a covered disaster.

Valuation Types

The cost of damage to your business property can be determined using two valuation methods. Choose the method that is most favorable to your business.

Actual Cash Value (ACV) – Using this method, the insurer reimburses the value of the replacement of the affected property with a deduction for depreciation. For example, if a piece of furniture that you bought five years ago was damaged by a fire, your insurance company would write you a check for the value of a new, similar piece of furniture minus the loss in value to the old furniture as a result of wear and tear over the five year period.

Replacement Cost Value (RCV) – Using this method, the insurer pays the original purchase price or the maximum amount for a new item without deducting the depreciation value. Regardless of how outdated or old the damaged property is, you will be reimbursed the property’s purchase price. While this might sound far superior to ACV, it should be noted that the premium price of an RCV policy is normally much higher than the premium price of an ACV policy.

If you believe that your company can benefit more with RCV and can afford to pay the extra cost, then go for it. If it sounds impractical in relation to your business's finances, choose ACV.

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