Commercial property insurance comes in many forms, as does the way it is paid out. Before you purchase property insurance for your business, make sure to review what type of coverage you have and how you will receive compensation if you ever need to file a claim.
Basics Of Property Insurance
When you purchase a commercial property insurance policy, you pay monthly premiums in exchange for coverage. You can choose your deductible, which can either raise or lower your monthly premiums, depending on the price of your deductible. Keep in mind that the deductible is how much you will pay out of pocket when it comes time to file a claim.
Your policy may be a Named Perils Policy or an All Risks Policy. An All Risks Policy covers every danger that is not listed as an exclusion. A Named Perils Policy covers only dangers that are explicitly listed on the policy. Both forms often cover:
- Storms (lightning and hail included)
Common exclusions include earthquake and flood damage. Knowing what type of policy you have can help you prepare for dangers, as your policy may cover some while not covering others. If you file a claim for damage caused by an uncovered peril, the insurance agency will deny it.
When you do file a claim, there are three ways you can receive compensation: Replacement Cost, Actual Cash Value or Extended Replacement Cost.
- Replacement Cost replaces or repairs the lost items with an item of similar or identical value.
- Actual Cash Value covers the replacement cost, but accounts for depreciation. For example, if the value of your destroyed equipment dropped from $1,000 to $500 by the time the accident occurred, you will only receive about $500 after filing a claim.
- Extended Replacement Cost is rarer. This value goes up with the cost of construction. For example, if your property is damaged but the cost of replacing it has become more expensive, extended replacement cost will help compensate for the additional cost. It generally won't cover anything beyond the 25 percent limit set by your insurance company, however.
Which Commercial Property Policy Should I Get?
The type of policy you purchase for your business depends on your specific needs. Every business is different. Actual Cash Value is less expensive, but Replacement Cost is more likely to replace your lost items in full.
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