What you need to know
Commercial property insurance is just like home insurance but for non-residential buildings. It can help in lots of costly scenarios, such as flood, fire and vandalism.
Commercial property insurance can be tailored to suit your exact needs. So no matter what your business property looks like, there is appropriate cover available.
Commercial property insurance, sometimes called commercial building insurance, protects the building that a business operates from. It covers the main structure of the building. That's the roof, walls, ceilings etc.
In some cases, commercial property insurance will also protect the things inside of a business, such as fixtures and fittings, machinery and equipment or stock. This is most useful for people who run a business from a property they own.
Typically, commercial property insurance comes as part of a complete business insurance package. That way, you get cover for more risks, such as legal liability, cyber crime and business interruption.
However, if you're a landlord and you lease your commercial property out to another business, you may benefit from landlord insurance or standalone commercial property insurance.
Commercial property insurance covers the building from which a business operates. In some cases, it also covers the contents of the building.
- The roof, walls and ceilings
- Glass and doors
- Fixtures and fittings
- Equipment and machinery
- Decorative items
- Your own criminal or reckless acts
- Gradual deterioration
- Poor maintenance or neglect
- Damage from termites and vermin
- Unexplained shortages
- Design errors and faulty workmanship
- Government-approved demolition
- Rust or mould
Commercial property insurance will help in lots of different situations. Some common examples include:
- Storm damage
- Fire damage
- Water damage – for example, from a burst water pipe
- Flood damage (although this may be optional)
- Impact – for example, from a fallen tree or crashed car
- Accidental damage (this may be optional)
- Machinery breakdown (this may be optional)
There are a number of common mistakes to avoid when purchasing commercial property insurance:
- Not updating cover. Many business owners forget to update their policy to accurately reflect the increased value of their business property, whether this is due to renovations or simply rising building costs. As a result, these businesses are under-insured. If the cover is updated annually, some policies won’t be updated to reflect a business's increase in turnover.
- Not aware of exclusions. There’s a reason we keep telling you to study the PDS closely and that’s so you know exactly what your policy covers. If you’re not aware of what is excluded from your policy, you could get a nasty surprise when the unexpected occurs.
- Underestimating. Many business owners also underestimate the cost they need to insure, from misjudging the cost required to reinstate a building, to failing to allow for the cost of replacing machinery.
- No business interruption insurance. This insurance is designed to help cover the loss of income a business suffers when it is unable to trade due to an unforeseen event. While it’s useful cover that can stop companies going bust, the percentage of businesses that have this type of insurance is quite small.
- Not getting advice. Insurance is complex at the best of times and commercial property insurance can be particularly confusing. Get expert advice from an insurance broker to get the coverage you need.
When determining how much cover you need, remember the aim of commercial property insurance is to return your property to the same financial position it was in before the insured event took place. In order to assign a coverage amount to a property, there are two ways to determine the value of that property: actual cash value and replacement cost.
Actual cash value
The actual cash value is the present-day value of a property. That figure is arrived at by calculating how much it would cost to replace a property, then deducting for depreciation caused by wear and tear.
Replacement cost method
The replacement cost method calculates the replacement cost of the property as new, rather than at its depreciated value. This figure can be very different to a property’s real-world market value. Location is a particularly important consideration in this method.
Many brokers recommend using the replacement cost method to calculate how much cover you need, but speak to an expert to get tailored advice for your situation.
- Commercial property insurance can help keep your business afloat should you suffer from a one-off event.
- Disaster can strike at any time and this insurance gives you the peace of mind that comes with knowing you’re covered against the unexpected.
- If your property or contents are damaged or lost, your cover will help you replace or repair these assets.
- Additional cover options can help you take care of the cost associated with repairing and reinstating your business.
- Exclusions applied to policies. Many exclusions apply to commercial property insurance policies, so it can be difficult to find the right policy for you.
- Complex terms and conditions. Reading PDS documents for these policies can be quite confusing, so it may be a good idea to get help from an insurance adviser.
- Differences between policies. Cover can differ greatly from one policy to the next, so don’t assume that every policy will include the same features.
Brokers are trained to make these things easier to understand, so you know exactly what you're paying for and don't end up disappointed further down the line.
If you are ready to speak with a consultant about different business insurance options available, simply enter your details in the form. Keep reading if you want to learn more about the different types of cover available.