A guide to commercial property insurance

If you’re just starting a new business, the variety of insurances that are out there can feel overwhelming. Commercial property insurance is one of the main types of insurance for small businesses that they’ll probably need from the start.

Is commercial insurance the same as property insurance?

You may know commercial property insurance as commercial building insurance, business property insurance, commercial real estate insurance, or non-residential building insurance. They all protect physical items or structures related to your business, and can help you repair or replace them.

Commercial property insurance is not the same as homeowner’s insurance, because it offers coverage for specifically business-oriented items and spaces. Homeowner’s policies typically won’t cover technology, equipment or files related to your business. It also won’t cover equipment, items or property that’s stored elsewhere, like a warehouse or storage facility.

So, let’s say you’re running a boutique winery. First you start production in your basement, but soon you put up a large building to house large tanks of wine, a bottling machine and a small tasting room in your yard. Homeowner’s insurance will probably not cover the equipment and inventory still in your basement, nor will it cover the new structure to house your expanded operations, even thought your winery is still on your personal property.


What Is Commercial Property Insurance?

When the worst happens, business property insurance helps you handle the damage and move forward. Commercial property insurance protects physical items you need, like the physical building you work out of, the equipment and tools you use, and your inventory.

Even if you rent a space, business property insurance protects the items inside the building, which can still be damaged or destroyed. You also may need to continue paying rent even if your building is compromised after a fire, and commercial property insurance often includes coverage for business interruptions, lost income, operating expenses and repairs to structures.

What does a commercial policy cover?

Protecting your company's physical assets is the primary goal of a commercial property insurance policy. So that means things like:

  • Equipment and Machinery
  • You own a restaurant, and your main walk-in refrigerator breaks down outside of warranty.
  • Building
  • A hail storm sweeps through the area, dropping golf ball sized chunks of ice onto your roof.
  • Inventory
  • In the middle of summer your HVAC system breaks down in your storage facility, where you keep chocolate that’s in various stages of being prepared for shipments. Everything melts.
  • Tools
  • Someone walks into your office to do routine maintenance and walks out with several computers.
  • Personal Property
  • You run a small, niche motorcycle repair business out of your garage, so you’ve insured the garage under your commercial property plan. The garage also contains the large spare refrigerator for your family. When a tree falls on your garage, the refrigerator, your personal property, is damaged.  
  • Furniture
  • An electrical fire causes significant damage to your office, including smoke damage that sinks into all your office furniture.


Interruption of business is also often covered under commercial property coverage. So in any of the above scenarios your business may be forced to close or stop operations while the damage is fixed. Commercial property insurance coverage can provide business income coverage to keep you afloat until you can get back to work.


Who Needs Commercial Property Insurance?


Every business needs commercial property insurance, including home-run businesses. Typical homeowners’ property insurance won’t cover damage to business owned equipment or inventory, so if you run a tax accounting business from a spare room, commercial property insurance will help cover damage to your computer, furniture and other business personal property.

If you run your business out of a physical location, own or lease inventory or equipment, and would have to close down if your property was stolen, broken or damaged, then you need commercial property insurance.

What if I don't own the building?

If you don’t own the building, check your lease to understand the terms of the insurance and what your obligations are. Sometimes tenants must insure the business property themselves. Sometimes tenants are required to continue paying rent even if the property is destroyed. So if lightning hits your warehouse and starts a large fire that makes the building unsafe, you might still have to pay rent even when you’re not doing any business. Some commercial property insurance will cover loss of business or disruption of business for that reason. Talk with your insurance agent to find out what the terms, limits and obligations


What Doesn't Commercial Property Insurance Cover?

As always, commercial property insurance has limits. It doesn’t cover everything. Damage to your property done by an employee isn’t covered, for instance, so if your employee drives a forklift into a large shelving unit, that’s not covered. If you or your employee gets into an accident in a company owned car while doing a delivery, that’s not covered either.

What about Earthquake or Flood Damaged property?

Earthquake and flood damage are not covered. Those types of incidents have their own specific insurance policies. If you’re in an area that gets earthquakes, or if you’re near a body of water and not sufficiently removed from it, you should look into earthquake or flood damage.

Ask your insurance agent about your property specifics and what is covered.

Commonly, the following types of property are not covered:

  • Electronic data
  • Areas surrounding your building, including land, docks, wharves, walkways and roads on your business property
  • Building foundations and the cost to backfill, regrade or excavate.
  • Crops that are stored outside, like hay or grain
  • Animals other than livestock
  • Vehicles, including aircraft and watercraft
  • Various forms of money, such as accounts, bills or securities.


Who Is Commercial Property Insurance Right For?

Commercial property coverage is right for almost every business who has equipment and/or inventory and a physical location where work happens, even if that’s a home. Often, commercial property insurance can be combined with other general liability coverage as a part of a business owner’s policy (BOP insurance). Combining them makes the package less expensive and more comprehensive.

With a combined business owner’s policy, you’ll get insurance tailored to your business needs that covers your own inventory, structure, equipment and products, as well as damage to other people’s property, injuries to vendors or customers and costs associated with lawsuits resulting from that damage.

How much does commercial property insurance cost?

Property policies ranges in price. The cost varies by your business’s geography, size, security, building and equipment age, current protections in place, foreseeable hazards and the property value itself. If your coverage specifies that it will pay out actual cash value, that means they will pay for the item’s depreciated value, rather than a replacement value, which pays out for the cost of a brand-new item.

The Takeaway

Talk with your insurance agent about how to tailor your insurance policies to your needs. At Montgomery we can help protect your assets and step in when the worst thing happens.

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