Everything You Need to Know About Commercial Property Insurance

Commercial property insurance is a vital component of a comprehensive risk management plan for businesses of all sizes. Commercial property coverage protects businesses from financial losses of property damage or property loss. However, there are different commercial property insurance policies including basic, broad, and special form policies, each with unique features and coverage options. I will explain each commercial property form and its differences in today's video. Like the videos I posted on my YouTube channel regarding liability policy forms, commercial property policies also have conditions that dictate coverage and affect protection, whether it's general liability, professional liability, management liability. No two policies are the same. It's really important that you read your coverage and understand your protection. One of the policy conditions you should understand and pay close attention to pertains to basic, broad, and special forms on your commercial property insurance. Let's start off with basic form. I'm going to explain to you what it means to have a basic form and also give you an example of a claim denial that took place because of a basic form policy. Basic form insurance is just like it sounds. It's the most limited type of commercial property insurance available. It typically covers damage or loss caused by specific perils such as fire, lightning, windstorm, hail, explosion, and vandalism. This type of coverage is sometimes called named perils coverage because it only covers the perils specifically named in the policy. Basic form insurance policies are generally less expensive than other forms of coverage because they provide limited protection. But in addition to the perils mentioned above, basic form policies may also cover damage from smoke, aircrafts, vehicles, or civil unrest. As you may know, kind of self-explanatory, one of the primary disadvantages of basic form insurance is that it does not cover all possible causes of property damage or property loss. For example, you may not be covered if your business suffers damage due to water or theft if those perils are not explicitly named in your policy. Here's an example of a claim that was denied because of the basic form policy. A small business owner purchased a basic form commercial property insurance policy to protect its retail store from property damage and theft. The store was broken into one day, several valuable items were stolen, the owner filed a claim with his insurance company to cover the cost of the stolen items, but the claim was denied. The insurance company informed the owner that the basic form policy had purchased only covered a limited number of perils and theft, unfortunately, was not one of them. Of course, the owner was disappointed to learn that his policy did not provide the coverage he needed and he had to pay out-of-pocket for the stolen items. It's crucial to ensure that the policy covers all the potential risks a business may face to avoid costly out-of-pocket expenses in the event of a loss, especially if you weren't expecting it. Now the next form I want to go into is the broad form. Broad form insurance is a step up from basic in terms of coverage. This type of policy offers protection against a broader range of perils than basic form insurance. So in addition to the perils covered by the basic form, which I just spoke about, broad form policies may also cover damage caused by falling objects, the weight of snow or ice, and damage resulting from the accidental discharge of water or steam. Broad form policies are more expensive than basic form policies but provide better coverage, better protection. They are a popular choice for businesses that want more comprehensive coverage but don't require the highest level of security available. Now one potential disadvantage of broad form insurance is that it does not cover all possible causes of property damage or loss. So you may not be protected if your business suffers damage due to a peril not covered by your broad form policy. Let's say a business owner has a commercial property insurance policy with broad form coverage. The broad form policy typically covers all risks except for those specifically excluded in the policy. Here's an example. One day a fire broke out in the business owner's building causing significant damage to the property. The business owner files a claim with their insurance company hoping to receive compensation for the damage. However, the insurance company denies the claim because of an excluded peril such as an act of terrorism caused the fire. The business owner's claim was denied because the policy they purchased did not cover the fire's specific cause. Again, vital for business owners to carefully review their policies and understand the exclusions to ensure they have the coverage they need in case of a loss. Now let's go on to the final form, the special form. As you can imagine, the special form is the most comprehensive type of coverage. It typically covers damage or loss caused by any peril unless specifically excluded in the policy. This type of coverage is sometimes called all risk coverage. I speak to lots of insurers, lots of my clients and prospects all the time, and sometimes people will say, well, I need all risk property coverage. When you ask for all risk coverage, special form is what you need. Special form insurance policies are more expensive than basic and broad form policies, of course, because they offer the highest level of protection against property damage and loss. In addition to the perils covered by basic and broad form insurance policies, special form policies may also cover damage caused by a backup of sewer and drains and equipment breakdown. Now, one of the primary advantages of special form insurance is that it offers the most comprehensive coverage. The policy protects businesses against various perils, providing peace of mind and financial security. However, special form insurance policies may include exclusions for certain perils or specific types of property. So again, reviewing the policy carefully to ensure it meets your needs is essential. So for example, suppose a business owner has a special form policy for their commercial property and their building is damaged due to flooding. The policy excludes damage caused by flooding and the insurance company denies the claim. The business owner might argue that the flood was caused by heavy rain and that the policy should cover this type of damage. However, if the policy specifically excludes damage caused by flooding, the insurer may deny the claim as flood damage is not covered under the policy. Again, essential business owners review the policy, understand the coverage and the exclusions before filing a claim. Also, you may want to consider purchasing additional lines insurance such as flood insurance if the property is in an area prone to flood. Now, how do you choose the right type of policy? How do you choose the right form? Of course, cost is a big part of it. You want to make sure it fits within your budget. Understanding where your risk is, where your risk lies, what's covered and what isn't is a big part. When selecting a commercial insurance policy, it's vital to consider the level of protection that your business needs. Basic form insurance may suit businesses with low property damage or loss risk. In contrast, broad form insurance may be a good choice for companies with moderate risks and, of course, special form for businesses with high level of risk exposure. It's also essential to consider the specific risks faced by your business. Suppose your business is in an area prone to flooding or earthquake. Consider a DIC policy, differential in conditions, to pick up those exposures or those also known as floods and earthquakes. At our agency, we have a lot of experience helping clients choose the proper form of insurance. Sometimes, unfortunately, clients can't choose. Carriers may only offer a certain form based on loss history, based on risk exposures, but most of the time, I'd say 99% of the time, we're able to provide the client with a special form if that's the form they desire, if that's the coverage they desire. Give us a call at 858-384-1506. You can also email hello at foagency.com. We're happy to help, happy to review your current commercial property portfolio coverage, give you suggestions where you might be able to improve, where you might be able to save premium, and what makes the most sense for you. Thanks again for watching. Remember, please like my video, comment below. If you have any questions, I'm happy to reply to every one of them. Subscribe and hit the little notification bell so that you're aware of any future videos that we release. Have a great day. Stay safe. Talk to you soon.