What Does Business Insurance Actually Cover? A Guide for Property Owners

What Does Business Insurance Actually Cover? A Guide for Property Owners

Starting a business takes a lot of courage, as well as a significant amount of time and money. A substantial portion of your initial funding often goes toward obtaining a commercial space and outfitting it with the tools, equipment, and furnishings necessary for daily operations and a welcoming customer experience. Business insurance plays an essential role in protecting these investments.

However, as a business property owner, it can be difficult to understand which types of coverage you need and how they work. A wide range of policies fall under the general category of “business insurance,” and each type provides protection for different business risks.

Here is what you need to know as you set up coverage that addresses your needs as both a property owner and business owner.

What Does Business Insurance Cover?

Every business is unique in the risks it faces. Some welcome customers to a store, while others manufacture goods or provide professional services. Because of these differences, defining what business insurance covers can be challenging.

For property owners, however, business insurance generally helps cover your out-of-pocket expenses when an unexpected loss occurs on your property. These losses typically fall under two primary categories:

• Property insurance: When a natural disaster, fire, or theft causes damage to your building or the equipment kept inside, business property insurance may reimburse you for repair, replacement, or reconstruction costs. Some policies can also help replace your lost income if you must close your doors while repairs are in progress.
• Liability insurance: Business liability policies can help cover your legal fees, defense costs, and settlements if a customer is injured on your premises or a neighboring company experiences property damage arising from your business operations.

Types of Business Insurance for Property Owners

Certain types of coverage can help protect against the risks you face when you own both a company and the building from which it operates. These typically include three core coverages:

• Liability for on-premises accidents
• Coverage for the building’s structure and your equipment
• Lost income for unexpected closures

For many small businesses, these types of coverage are often bundled together under a Businessowners Policy (BOP). Larger businesses or those with unique needs that can’t be met with a BOP may instead combine coverages under a Commercial Package Policy (CPP).

Let’s take a closer look at these common types of business insurance for property owners and how they work to protect your business.

Commercial General Liability (CGL) Insurance

A CGL policy is one of the most standard forms of business liability insurance. It is designed to cover the various ways in which you are exposed to losses as both a business owner and property owner.

In addition to paying for damages caused by your services, products, or employees, CGL insurance can help provide protection when an accident on your premises results in a third-party injury or property damage. It can help in incidents such as:

• A client slips and falls in your lobby.
• A piece of art falls off the wall and onto a visitor as they walk by.
• A customer becomes ill after eating dinner at your restaurant.
• Your employee accidentally bumps your client’s laptop off the conference room table.
• Your outdoor sign crashes into the side of your neighbor’s building.

When one of these scenarios occurs, CGL insurance can step in and help pay for the resulting:

• Medical bills
• Lost wages
• Rehabilitation
• Death benefits
• Pain and suffering
• Repair expenses
• Defense costs
• Legal fees

CGL insurance only covers cases involving third parties. It does not apply to employees’ injuries or internal property damage.

Commercial Property Insurance

Commercial property insurance can help pay for repair or reconstruction costs when your building, equipment, supplies, tools, inventory, furniture, decorations, or other types of business property are damaged in a covered event. There are three tiers of commercial property coverage, which determine the events you are protected against:

• Basic form: As its name suggests, this policy provides a business with the basics, including coverage for fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, vandalism, sprinkler leakage, sinkholes, volcanoes, and collision involving an aircraft or vehicle.
• Broad form: Building upon basic form coverage, broad form policies extend protection to also include damage related to falling objects, water leakage from appliances, certain types of collapse, and weight of snow, ice, or sleet.
• Special form: This policy generally offers the most comprehensive coverage. Instead of naming which events are covered, it only lists which events are excluded. Therefore, if a loss is not specifically excluded, it will likely be covered, assuming it meets other terms, conditions, and limitations set by the policy.

Not only can you choose which group of losses you are covered for, but, to a certain extent, you can also choose how you are reimbursed. Actual cash value (ACV) coverage is typically the least expensive option, but your claim payout will reflect the depreciated value of your damaged property based on age and condition.

Replacement cost value (RCV) coverage, on the other hand, may cost slightly more, but it removes depreciation as a factor. Instead, your reimbursement rate depends on how much it costs to rebuild or replace at today’s prices, subject to your policy’s limits.

Business Interruption Insurance

Business interruption insurance (sometimes called business income insurance) helps cover your company’s lost income and other qualifying expenses following a covered event. For example, if a fire forces you to pause operations while repairs are being made, this coverage can help replace the income you would have earned if you had remained open.

Coverage typically kicks in after a waiting period of 48 to 72 hours. This means you generally cannot recover your lost income during the first two or three days of your business’s closure. Your insurance company will begin reimbursing you for your covered losses once the waiting period ends.

In general, there are four types of business interruption insurance:

• Standard business interruption coverage: This helps replace your lost income if your business has to temporarily shut down due to a covered event. It can also help cover certain types of fixed expenses, such as mortgage or rent payments, loan installments, taxes, and payroll.
• Extra expense coverage: In addition to helping with your lost income and fixed costs, this coverage can help if you must rent another temporary location to continue your operations. It can help cover expenses such as relocation costs, equipment rental fees, and employee overtime rates.
• Contingent business interruption coverage: If you rely on third-party suppliers, vendors, or manufacturers to generate income, this coverage can help when one of these partners experiences a loss that impacts your operations and revenue. It can help offset the resulting financial impact, allowing you to keep your doors open and day-to-day tasks running.
• Extended business interruption coverage: After repairs are made and you reopen your doors, you may find that your income does not immediately return to normal. This coverage can help you make up the difference until your revenue reaches its pre-loss levels.

Your local Gilbert Insurance team is here to help you understand how your business insurance policies work together to offer well-rounded protection. Whether you are exploring your options as a new business property owner or reviewing your existing coverage, connect with one of our dedicated and knowledgeable agents today.