Different Types of Business Property Insurance

Business property insurance basically means insuring business premises and the stock contained therein against damages or disasters identified in the policy. The stock could be anything from machinery to goods-to-be-sold to office property like furniture, computers to other things. The premium for business property insurance depends on the types and number of losses covered by the policy.

There are generally two types of business property insurance:

Specific Loss Policy - This type of business property insurance covers loss due to a particular cause like 'Fire' or 'Theft'.

General Policy - This type of Business property insurance covers loss due to a number of causes pre-defined in the policy.

It is advisable for a small business to go in for a general type of policy popularly known as 'Business Owners Policy'. However, in certain cases where the risk could be unusually high or due to a particular risk, this general policy may not be applicable. In such situations, Specific Loss Policy could be an option.

Modifications of Business Property Insurance Policies

Business property insurance policies can be modified from time-to-time but these modifications should be done carefully. Increasing the scope of coverage to an already existing business property insurance policy can be beneficial. Also the list of covered locations or property mentioned in the business property insurance policy should be updated regularly, especially in cases where there has been a major addition to equipment or location. The benefit of this can be seen at the time of settlement of claims.

Mention of any 'Exclusion' of a particular cause of loss or damage in the business property insurance policy should always be weighed carefully before taking up the policy. Business property insurance companies generally settle claims based on either 'Actual Cash Value (ACV)' or 'Replacement Value'. ACV means the property is valued at the time of loss or damage. For example if a car was bought for $80,00 but was damaged in an accident three years later, then the ACV would be calculated taking into account the car's depreciation value for three years, which could be, say $20,00. Thus, the ACV stands at $60,00.

Replacement Value is calculated on the actual value of the property at the time of loss or damage. Taking on from the previous car example - three years ago the car's price was $80,00 but has gone up since, due to price increase, to $100,00 now. Then the Replacement Value would be calculated as $100,00 and NOT $80,00. Of course, the premium for Replacement Value type of coverage is higher.

The most prudent way of choosing the right type of business property insurance policy is not by merely calculating the premium but also the other critical aspects of the policy which have been mentioned earlier.