By: Joseph C. Smith, CIC, CPIA, CBIA
Georgetown Insurance Service, Inc.
Frederick, MD
When you first hear the term “Business Property Insurance” what comes to mind? Is it the building you work out of, the hardware you utilize, or the software that keeps your business up and running? Well…it can actually cover any and all of those things.
Business Property Insurance should be considered a “no-brainer” coverage for every business owner and landlord. In fact, many landlords require that their tenants have property coverage for any rented space and for good reason. The financial loss attached to physical property damage is simply too great for them to take on with no coverage. Inadequate insurance coverage often results in a business not reopening after a loss.
You never know when a pipe may burst flooding the office or when a break-in could occur overnight. Fires, either in your space or an adjacent space, can knock you out of business. As a tenant renting space, having a business personal property insurance policy should protect your physical assets, including your interest in leasehold improvements, and the property of others that is in your “care custody and control” and within your space. Your landlord’s policy does not offer coverage for you or your property, and almost always contains a mutual waiver of subrogation.
As a landlord or business investment property owner, you still need a business property insurance policy to cover the buildings themselves and any business personal property you own within the building for servicing the building. It is also imperative that your tenants provide proof of business personal property insurance, including leasehold improvements. Additionally, it is critical that they have adequate loss of business income insurance to help ensure they will survive the loss and continue to operate; even more importantly that they will have the ability to pay their rent. If your tenant is in insuring leasehold improvements, then it is important to have them endorse the policy to include you the landlord as an additional insured – building owner.
What Type of Property is Covered?
Coverage specifications can vary based on the policy depending on the options you select, but at the very least, your average business property insurance policy will cover the following:
- Buildings (Leasehold Improvements): Physical and structural damage to tenant leasehold improvements that are made to a building should also be covered under this policy. It is important to note that all damage caused by the perils of flood and earthquakes are excluded, however, they may be covered by endorsement. Flood hazards for property located in an identified flood zone virtually always must be covered through the Federal Flood Insurance Plan.
- Furniture and Business Equipment: What would happen if your office got vandalized overnight and you found yourself with broken furniture? Could you afford to replace it? Furniture, such as desks, chairs, and tables, while fairly easy to replace, can quickly add up. Business personal property insurance would cover the replacement of these items. Pay special attention to business equipment that is unique or critical to operating your business such as a printing press or a machine that fabricates sheet metal. Delays in replacing such critical and unique equipment can significantly impact the ability of the tenant to resume operations.
- Technology: Such as computers, printers, copy machines, phones, etc. It is important to note that this only covers the physical asset itself…not the data stored on the technology. Software such as installed programs should still be covered though. Leased equipment such as printer/scanner/fax machines are usually the responsibility of the leasee to insure and can be much more expensive than expected. Be sure to review these requirements in your contract.
- Important Company Documents: Accounting records, operational agreements, non-disclosure agreements, shareholder agreements, licenses…the list of important paperwork to keep on file can vary for each company. However, replacing these documents is not only a pain, but also costly. A business personal property insurance policy will reimburse you for this often-overlooked loss. Perhaps an investment in a fireproof safe or filing cabinet could alleviate risk of loss. Considering multiple electronic backup copies of these documents offsite could save much hassle.
- Business Income: One of the costliest side effects of property damage can actually be lost business income resulting from the damage. Depending on the extent of the damage, your business operations can be severely disrupted while you wait for replacements to arrive or repairs to be made. (There is typically a waiting period associated with this). The lack of adequate business income insurance is the most common cause of businesses failing to re-open following a loss event.
As with all insurance policies, it is important that you select the best policy to fit your coverage needs. We will be discussing the danger of underinsuring your business property coverage in a future blog and how you can accurately assess your risk. Stay tuned for more to come…
If you have any questions, please don’t hesitate to email us or give us a call.