WHAT ARE THE DIFFERENT TYPES OF
COMMERCIAL PROPERTY INSURANCE?
As a business owner, you don’t want your hard work undone by expensive property damage. That’s where commercial property insurance comes in. By understanding the different types of commercial property coverage, you can see which policies you may need—and which policies may not apply to your business.
Each type of commercial property policy covers some of the policyholder’s business property in some way. The differences are in the types of property they cover and the circumstances when they will pay for property damage.
Physical (non-moving) property insurance
Let’s start with the two most common types of commercial property insurance, open perils and named perils, which typically cover a business’s physical locations and the equipment and fixtures inside them—stuff that’s not mobile or shipped from one place to another.
Open perils coverage
This type of insurance policy—also called all risk coverage—covers damage to your buildings and their contents from any cause that isn’t specifically excluded.1
An open perils coverage policy is convenient because it can cover a lot of risks that any business might face. However, make sure to review the exclusions of your policy, as not all policies cover the same risks.
But an open perils policy may not cover the types of risks that matter most to your business. You’ll need to see what’s excluded from the policies available to you before you decide whether to buy open perils insurance coverage. It’s also typically more expensive than a named perils policy (which we’ll talk about next).
Named peril policies
Unlike the more comprehensive open perils policy that covers everything it doesn’t explicitly rule out, named peril policies only cover the items they include. This kind of policy can save you money by ensuring that you’re only paying for protection against the risks your business faces. The named perils can include:2
- Explosions, fire, smoke, lightning
- Vandalism, theft
- Vehicle and plane crash damage
- Volcanic eruptions
- Wind, hail, freeze damage, damage caused by the weight of snow and ice
For example, if your business operates in an area that’s prone to severe hail storms and range fires, a named peril policy might be more affordable because it’s more focused on those specific needs, as opposed to a comprehensive policy. It all depends on your business risk profile and your own tolerance for risk.
Equipment property insurance
So, a named peril or open peril policy can cover your buildings and their contents. But what about your physical assets that move from place to place, like products you ship to customers, trade shows and tech gear that goes on the road, or products you temporarily store for your clients? Read on.
Inland marine insurance
You may think something called “inland marine” insurance doesn’t apply to you if your business is on dry ground. But inland marine coverage protects a big variety of business property that never gets anywhere near water. Similar to ocean marine policies—which we’ll cover below—inland marine policies are designed to cover property while it’s in transit.
Inland marine policies cover property in transit over land or by inland waterways (hence the “inland”).3 This type of policy is sometimes called a floater policy, because it covers business property as it moves (or floats!) around.
Within this category, there are several specialized policy options, including:
- Fine arts coverage, which insures artworks in transit, in storage and on loan to museums and galleries.
- Cargo coverage, which protects your customers’ purchases while they’re in transit.
- Installation coverage, which protects your business equipment from damage while it’s being professionally installed.
- Bailee’s customer coverage, which insures customers’ property while it’s on your property.
- Jewelers block coverage, which protects against jewelry stock damage and losses.
If your business frequently transports valuable items like computers, cameras, medical equipment, scientific instruments or tools, then an inland marine policy may be a wise choice.
Ocean marine insurance
It wouldn’t be fair to talk about inland marine insurance without mentioning its seagoing sibling, ocean marine insurance. Your business may not operate ships or build boats, but if you frequently ship cargo overseas, you might need an ocean marine policy.
For example, if you manufacture products that ship to markets abroad—or if you import or export other suppliers’ products—a cargo insurance policy can protect you if products you ship are lost or damaged at sea. Cargo coverage also protects the products you’re shipping while they’re in the warehouse awaiting shipment or pickup.4
Ocean marine policies usually exclude property losses caused by mold, mildew and humidity, as well as damage caused by wars or riots. Also, damage caused by sea creatures isn’t covered, which is a concern mostly for businesses that own boats and ships that could be damaged by things that live in the water.
With your property insured on your premises and on the road (or the high seas), it’s time to think about another type of loss that property damage can cause: lost income. If your store, workshop or warehouse is damaged by a fire, hailstorm or some other peril, you’re not just out the cost of the damaged items—you’re also losing income until your business is operating again. This is where business interruption insurance comes in.
Business interruption insurance
Business interruption insurance is a kind of commercial property policy that covers losses in business income if your business property is damaged and you have to temporarily close. You may also see this kind of insurance policy referred to as business income insurance.
How does it work? If you have a physical store that’s heavily damaged by an accident, a business interruption policy could help cover the sales you’ll miss while your property is closed to customers for repairs. Likewise, if your factory depends on a piece of equipment that gets stolen, business interruption insurance could cover your net income losses while you’re waiting for the replacement to arrive.
This kind of business property insurance policy also covers other expenses you may incur while your property is out of commission and unable to generate income, including:
- Mortgage or lease payments
- Employee payroll expenses
- Loan payments
Keep in mind that to make a claim, you’ll need to have documentation of your business income and expenses from before the interruption.
What else can a business interruption policy cover?
You may be able to purchase endorsements for your business interruption policy or separate policies that protect your business income in more situations.
For example, a business that’s shut down because of a fire may need to buy new furniture, equipment and supplies—and find a new space to rent. Extra expense policies are designed to cover these costs when your normal business situation is disrupted.
A utility services endorsement can protect your business income in case there’s a power outage or a water line problem off your premises that forces you to halt your operations.
There are also a couple of options that can protect you against business interruptions that are caused by damage to other people’s property.
For example, if a nearby building is in danger of collapsing, emergency officials may declare your building off-limits for safety reasons until the other building is repaired or taken down. In this kind of situation, a civil authority endorsement can keep you from losing your business income.
If your business depends heavily on others to succeed, a problem with their operations can quickly lead to a problem for you. What if your business depends on foot traffic from a nearby office tower that’s forced to close for repairs? Or your supplier’s warehouse—and all the supplies you need—are damaged? Or a major customer is shut down and you do not have that person to sell your goods to? Contingent business interruption policies can take care of the income loss that can result from damage to your purchasers’ or suppliers’ properties or to nearby locations that draw customers to your business.
What isn’t covered by a business interruption policy?
It’s important to know that business interruption insurance won’t cover very short interruptions. There’s an exclusion period of two to three days on most business interruption policies.
Some business interruption policies won’t cover a shutdown that drags on for months. These limit what’s called the “restoration period,” when you’re covered while closed for repairs, to 30 days. If you’re at high risk of a longer shutdown related to property or equipment damage, you should review the coverage to determine how long of a restoration period you need and ensure that you get the correct amount of time for recovery.5
Your business interruption policy won’t cover lost income for losses that are not covered by the base property form. So if the base policy excludes loss by flood or earthquake, you wouldn’t have coverage for business interruption as a result of earthquake or a flood damage to your business property. For coverage of that kind of loss you need a separate disaster policy. So, if your business operates in a flood prone region or earthquake zone, it’s wise to look into flood or earthquake insurance.
Business income insurance may not cover closures caused by on premise utility outages or pandemics. Right now, pandemic insurance isn’t widely available at rates that many businesses can afford, although some insurers are working to change that.6 If the utilities in your business area are unreliable, or if an outage would cause major losses, consider a utility services endorsement for your policy.
Small business insurance: Protect your business and property
Your physical assets—be it a laptop, camera, chainsaw or clown makeup—are crucial to the operation of your business. For the equipment that moves with you there’s Thimble’s Business Equipment Protection (aka inland marine insurance). And while protecting your physical property is important, don’t forget about protecting your business against general liability and/or professional liability. When your business is covered on, you don’t have to stress about possible financial losses. You can put your energy and attention into growing your business.
You’re off to a good start already, because you’re learning about the coverage you may need to protect your business. At Thimble, we’re really into making business insurance easy to understand. More than that, we make insurance easy to buy.
Thimble lets you pay for just the coverage your business needs, just when you need it. We offer policies by the month or by the job, down to as short as an hour. And as soon as you buy, you get your Certificate of Insurance delivered straight to your inbox, so you can get back to work with confidence.
How does it work? Click “Get a quote,” enter your details, review your quote, make your purchase and get your Certificate of Insurance. Boom. Done. Thimble has you (and your stuff) covered so you can focus on making your business the best it can be.
- Investopedia. Named Perils Insurance Policy.
- IRMI. Named Perils Coverage.
- IRMI. Inland Marine Coverage.
- Insurance Information Institute. Insuring marine businesses and cargo.
- Insurance Information Institute. Do I need business interruption insurance?
- National Association of Insurance Commissioners. Pandemics.