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Commercial Property Insurance

Commercial Property Insurance

Businesses own assets, like buildings, raw materials, inventory, office furniture, computers, fixed equipment, among other things.  All of these things are categorized as property and insured under the umbrella of property insurance.   

Similar to home insurance, property insurance provides protection against certain causes of loss, such as fire, wind, hail.  (The specific causes of loss are listed in the policy.)    A defined deductible also applies.  But there are differences between business property insurance and home insurance.  Here are two important distinctions every business owner should know.

Co-insurance.  Co-insurance is one of the most confusing terms in business insurance.  In its simplest terms, a co-insurance clause states that the insured has agreed to insure a specified building for a value that is at least 80 percent of its total value.  (80 percent is the most common percentage, but 90 percent is also used.)  The value of having co-insurance is the ability to buy less than 100% of the total value.  However, if the building is worth more than what is specified, the insured is going to be penalized for underinsuring the property at the time of a loss.  Here’s a calculation to demonstrate co-insurance at work:

Total value of building: $100,000
80% value of building:  $80,000
Businessowner chooses to insure it for $75,000
When a total loss occurs, the insurance company will calculate a co-insurance penalty.
$75,000 insured amount / $80,000 proper amount = 93.75%
Insured receives only 93.75% of the total claim amount (less deductible).

 

Statement of Values & Blanket Limit. A Statement of Values is a document whereby the businessowner lists each property location intended to be covered by a policy. The location values are totaled and insured as one property limit. So, rather than insuring each location for a specified limit, a total limit of all properties insured (called a blanket limit) is provided. This blanket limit allows for flexibility at time of loss because the total limit is available, rather than just the specific building’s limit. 

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