Why You Need Business Property Insurance

No business owner can predict the future, which is why a comprehensive business insurance policy is important. It's also why there are more commercial insurance policies written annually than personal policies (Insurance Information Institute). In particular, property insurance is important to the savvy and forward-thinking small business mind.

What Business Insurance Covers

Simply put, business property insurance covers your business in case of unforeseen damage or loss to your building, inventory and equipment. That means, even if the neon sign hanging out in front of your store shorts out in a storm, you are covered. The coverage also extends to business machines such as laptops and PDAs, furniture and valuable paperwork.

Types of Business Insurance

There are three main kinds of business property insurance-basic, broad and special*.

• Basic covers damages from natural disasters such as fire, storms and explosions.
  
• Broad covers the Basic damages, plus other unforeseen events such as a riot that leaves your store in a shambles.
• Special is the most comprehensive form and will have your business airtight with protection. It covers Basic and Broad damages, plus all direct physical loss that is included in your policy description.
  

Actual Cash Value vs. Replacement Cost Business Insurance

In addition to the plan level, you also have to decide between actual cash value versus replacement cost insurance. The difference is depreciation. In short, an actual cash value policy will give you a used laptop of the same age and use as the one you lost, while a replacement cost policy will give you the cash to buy a new laptop that is similar to the one you lost, ignoring depreciation.

Property Insurance for Business Owners Who Lease

If you rent your business unit, don't put your feet up on your newly delivered cherry wood executive desk with the assumption that your landlord is responsible for any loss to your property. While the building itself is most likely covered, your inventory, computers and other property specific to your own business are not. That beautiful desk could be a distant memory if there is a fire or other loss and you never purchased your own business property insurance to cover the item.

In the case of a lease or rental, you will usually only need property insurance to cover your property and improvements you paid for. Your landlord may sue if the damage is caused by you or one of your employees-in that situation, you should be protected by a comprehensive plan.

Finally, if you operate a business from home, it is probably not protected under your homeowner's policy.

Seasonal Variations

Let's say you run a seasonal operation, such as a Christmas tree business. A week before Christmas you come to work and all of your trees have been uprooted. Though that thief wouldn't be very hard to catch, you will experience a higher loss in that particular season. Christmas trees are worth a lot more at Christmas than they are on St. Patrick's Day. So most business property insurance policies account for seasonal variations, and will provide for an automatic percentage increase in your coverage limits during your business' busy season.

As a business owner you are smart, the master of your domain and you know the value of protecting your assets. Be sure to purchase a business property insurance policy that will safeguard all of your valuables and allow you to sleep at night, knowing that your business is covered from top to bottom.

*National Association of Insurance Commissioners