Important but often overlooked coverages on your commercial insurance
Many businesses first purchase the insurance they’re legally required to, and then find out later that those legally-mandated coverages are limited and don’t provide all the protection a business would want. This education often happens one of two ways: one is that they learn about it through an article or update from the insurance industry, possibly provided by their agent, or something forwarded to them from a peer in their line of work; the second way is through a horror-story of someone having a claim they thought would be covered, but wasn’t. Hopefully this short synopsis will help you avoid the latter and make sure your insurance portfolio covers everything you want it to.
Keeping this simple and easy to process, we’ll just focus on one line of insurance this time: coverage for your business’s Property and Equipment.
The insurance for this goes by many names, but most commonly it’s labeled as Commercial Property or Inland Marine, and it’s a first-party coverage, meaning it’s designed to protect YOU, the insured, from your losses related to physical damage to Property or Equipment you own or are otherwise responsible for.
So first thing to know about Property coverages is that there is no law requiring you to have them, which means you normally would have to specifically select it in order to get the coverage because no legal authority will be forcing you to get it. However, many of these coverages are still considered “essential” by businesses once they become aware of them, so let’s take a moment to list them out along with what they potentially cover.
- Building coverage: for Commercial Real Estate that you own. Keep in mind that coverage for this is normally only for Replacement Cost of the structure, not market value of the entire property, so don’t include the value of the land in this as you’re not insuring the dirt.
- Tenant’s Improvements and Betterments (TIBs): this provides coverage for permanent improvements you make to a structure that you don’t own, i.e. if you have a commercial kitchen installed for a restaurant you operate in a space that you lease.
- Business Personal Property (BPP): provides coverage for your business contents at long-term location(s) you specify. This can include, stock, inventory, equipment, machinery, furnishings, computers, desks, consumables, etc. Ideally you want your coverage amount for this to equal the total Replacement Cost (what it would cost to replace old items lost with new items of similar kind and quality), which would include sales tax, delivery, set-up & calibration charges, and anything else to get you back to where you were pre-loss. If in doubt, estimate high on this number because low-balling your estimate can result in a co-insurance penalty if it’s determined that you were underinsured at the time of loss.
- Mobile Equipment: this is an Inland Marine coverage that is similar to BPP above, but covers your equipment located anywhere in your policy’s Coverage Territory. This is where you would want to cover the tools and equipment that go from one jobsite to the next, or that live onboard your service vehicles. A note about this coverage: it’s usually divided into 2 categories:
- smaller value mobile tools and equipment, where the value per item is a maximum of somewhere between $750 and $2,500 (the limit varies depending on your insurer) which you should think of for smaller hand-tools: these can be insured under a lump sum coverage limit covering the total value of all small mobile tools in that category; called Miscellaneous Unscheduled Tools/Equipment
- vs larger value tools and equipment worth more than your per-item limit noted above: these larger items will need to be kept itemized on a spreadsheet you keep updated with your insurer, called Scheduled Equipment.
- Installation Floater (also called Builders Risk): this is for materials you are installing at a customer’s job site, with coverage limits available for those materials while in transit, while stored at the jobsite prior to installation, and while installed but before the final when the customer takes ownership & responsibility. For this coverage, pick a number that represents the max value in materials you might have on any jobsite at any one time.
- Property of Others in your Care/Custody or Control: also called Bailees coverage, this is relevant if you take in property of others for servicing or storage, potentially if your location is being used as a depot or staging location by your materials-vendor or your customer.
- Rented Equipment: covers you for equipment you rent on a short-term basis (often defined as no more than 30 days). Many businesses start off allowing the rental company to provide coverage for this, but find it so expensive they switch to their own policy once they are renting equipment more than just a couple times a year.
- Loss of Income (also known as Business Income): covers you for your loss of income due to damage to property at a covered location. This coverage is most often sought out by businesses that are location-dependent. There are various forms available, but the starting point is to decide what dollar amount of coverage you would need to meet the ongoing expenses you would continue to have if your operations were suspended due to physical damage to property at your location. I.e., if you were a restaurant that had to temporarily close due to a fire in your kitchen, what bills would you need to continue paying even while closed, and for how long? This coverage can also include Extra Expense which can take care of the additional costs you’d have to incur to get up and operational ASAP at a temporary location.
This is a good basic listing to consider: since these are not legally mandated coverages, should I double check and make sure my insurance includes the ones here that I care about? Property insurance has traditionally been relatively inexpensive, so you might be surprised at how much coverage you can get for a low cost.
The most important takeaway though, is don’t assume you’re covered. Get a review on your policies (think “best practices audit”), and then you can make your own best, educated decision.
If that’s something we can help with, please give us a call. We’re happy to do it, that’s our job!
About the Author
Larry St. John is a 20+ year veteran of insurance and risk management for the construction and electronic security industries.
He can be reached at LStJohn@eclipseinsurance.com