Property and liability insurance are critical coverages for small business owners. Property insurance protects small business owners from losses due to theft or damage to physical space or equipment.
Property insurance may be one of the most important types of insurance for financially protecting the property and physical assets of your business. Types of property a business needs to insure include:
- Buildings and other structures, leased or owned
- Furniture, equipment, and supplies
- Leased equipment
- Inventory
- Money and securities
- Records of accounts receivable
- Improvements you made to the premises
- Machinery
- Boilers
- Data processing equipment and media, including computers
- Valuable papers, books, and documents
- Mobile property, such as automobiles, trucks, and construction equipment
- Satellite dishes
- Signs, fences, and other outdoor property not attached to a building
- Intangible property (goodwill, trademarks, etc.)
Three types of property insurance plans:
Basic Property Insurance Form
Generally, covers losses caused by fire or lightning and the cost of removing property to protect it from further damage (i.e., removing inventory or equipment from a damaged building so it will not be stolen).
Broad Form
Includes basic coverage plus coverage for “extended perils,” including windstorms, hail, explosions, riot and civil commotion, aircraft, and vehicles that damage the property of the insured.
Special Form
Includes basic and broad coverage and covers all direct physical losses except conditions specifically excluded as listed in the policy.
Business Owner’s Policy (BOP)
One package policy frequently purchased by small- to mid-size businesses is the Business Owner’s Policy or BOP.
BOP is a package policy designed to meet the insurance needs of small offices, stores, apartment houses, and certain types of small services and processing businesses. The key to whether a business owner is eligible for BOP is the size of the premises, the limits of liability required, the type of commercial operation it is, and the extent of its off-premises servicing and processing activities.
BOP includes property insurance for buildings and their contents. The package policy may also cover loss of business income and extra expenses resulting from a fire or similar insured peril. The liability section of BOP includes coverage for bodily injury or property damage a business may be liable for.
Property Insurance Coverage
BOP provides two basic property coverage forms: the standard form and the special form. Both forms cover buildings and most business property on a replacement cost basis. Replacement cost coverage is what it actually costs to replace or restore the item without deducting for depreciation. Do not confuse replacement cost with actual cash value. Actual cash value is usually figured out by taking the replacement cost of the item and subtracting depreciation. For example, if your seven-year-old desk that cost $500 was damaged in a fire, it might have depreciated 50%. Therefore, you would be paid $250 for it.
Owners of older buildings for whom replacement cost coverage may be difficult or too expensive to obtain might consider the actual cash value option. Actual cash value is offered as an option for buildings. The property coverage under BOP automatically includes other people’s personal property to the extent the business owner is legally liable for the damage.