Every business or organization that is run from a specific location has assets like machinery, inventory, computers, servers, and other physical properties. These physical assets are not only valuable but some of them like computers and servers contain sensitive information about the company. Any danger or damage to these assets can result in a financial loss and may also hamper the reputation and growth of the business to some extent. To protect these assets, insurance providers have come up with a unique insurance policy called commercial property insurance.
What is commercial property insurance?
As per the commercial property insurance definition, an insurance policy that protects the business by protecting its physical assets from burglary, natural calamities, thefts, fire, explosions, and other catastrophes is said to be a commercial property insurance policy. Some insurance providers also call it business property insurance. The potential losses that a company may suffer from such unforeseen events is reimbursed by such an insurance policy.
Why should businesses get commercial property insurance?
Calamities and thefts disturbs the normal operations of a business. We often do not consider the factors that determine whether our business is located in a flood or earthquake prone area. Most businesses do consider the potential dangers posed by natural calamities to their physical assets and get them insured. However, it is almost next to impossible to predict man made disasters like riots, strikes, fire, explosion, etc. A commercial property insurance policy safeguards a company’s financial and business interests from such uncertainties.
If you run a business, having a commercial property insurance will not only provide a safety net to the physical assets like computers, furniture, inventory, etc. but will also safeguard the construction and plumbing works. Some of the key assets covered under commercial property insurance includes:
- Computer units
- Machinery and equipments
- Inventory items
- Documents
- Exterior fixtures like name board
- Landscaping and fence
- Furniture & fixtures situated inside the firm
- Electrical equipments and plumbing works
Your investment to acquire these assets run down to millions or even billions in some cases. The entire investment can be destroyed single-handedly due to the natural and man-made disasters. Therefore, having a commercial property insurance policy is a sensible thing for most businesses.
Key Features of Commercial Property Insurance
- Pollution cover: The premises of your building may get polluted due to vandalism or natural calamities like floods, volcanic eruptions, earthquakes, tornadoes, etc. The commercial property insurance would reimburse the costs required to clean up the premises due to such reasons. However, if there are oil leaks due to poor maintenance and improper handling, the commercial property insurance may not cover it.
- Coverage for lost income: You may not be able to continue running the business in the same location if your property gets damaged due to natural or other reasons. The income that your business losses during these days can be protected by availing a comprehensive commercial property insurance plan. The loss incurred to your business due to expenses like employee salary is also reimbursed by such an insurance policy.
- Easy application process: Most insurance providers provide an online application process through their official website or app. It allows you to subscribe to commercial property insurance from any part of the world. The renewal and claim settlement processes are also handled online these days.
- Mental peace: Businesses often invest a huge amount of money to raise the necessary infrastructure for their multiple processes. It also includes the investments made for fragile items and inventory. Having an insurance policy to backup their investments creates a sense of financial security for them.
Characteristics of Commercial Property Insurance
- Builders risk coverage: You might be planning to construct new buildings or structures to expand your business. The builder’s risk coverage provides coverage for your buildings and structures that are under construction.
- Buildings and property coverage: It protects your business from the losses caused due to damage to constructed buildings and properties such as machinery, electronic appliances, outdoor and indoor fixtures, etc. The property coverage includes other’s property that is under your custody or within your business premises. Typically, any physical property that is within the 100 feet distance from your insured commercial property is insured. In this case, the insured i.e. you will have to raise the claim and the insurance provider will pay the property owner.
- Protection against numerous perils: Lightning, smoke, explosion, hail, volcanic eruption, windstorm, are other natural disasters that are covered by a commercial property insurance plan. Damage caused due to man-made disasters like riots, fire, explosion, vehicles, oil or gas leakages, etc. are also covered under this policy.
- Equipment breakdown coverage: Machinery like boilers, elevators and lifts, CNC machines, motors, generators, engines, air conditioners, refrigerators, electrical systems, etc. are also protected by commercial property insurance.
- Actual cash value: The depreciated value of a commercial building over time is calculated while reimbursing the property damages. Actual cash value or ACV is the cost reimbursed by the insurance company after deducting the depreciated value of a commercial building.
Types of Commercial Property Insurance
A comprehensive property insurance includes various types of coverages such as property coverage, workers compensation coverage, equipment coverage, etc. However, all the businesses might not need extensive coverage. Therefore, insurance companies also provide specific types of commercial property insurance. These insurance policies can be categorized as per the company type and their requirements.
Property Insurance
It is a common type of commercial insurance in which the damages to the property of the insured business are covered.
Shop Insurance
Shop owners who sell electrical items, motorcycles, cars, or any other item can get shop insurance. It will protect them from burglary, theft, and different perils.
Marine Insurance
Marine companies that want to insure their cargo, oil, gas, and other infrastructure can get marine insurance.
Liability Insurance
A liability insurance covers the bodily injuries inflicted on the employees or any other stakeholders within the company premises. It also provides property damage cover, work compensation, product liability coverage, and other benefits to the policyholder.
Employee Benefits Insurance
This type of commercial property insurance protects the employees of a company from accidents and bodily injuries.
International Insurance
Companies that operate in different countries may want to subscribe to international insurance. It will protect them from financial losses in any cross border issue that affects their business or damages their property in foreign land.
Aviation Insurance
Aviation companies can get an aviation insurance policy to protect their jets, airplanes, and other machinery and equipment. The crew members of the company are also covered by the policy.
Automobile Insurance
Automotive companies can insure their production units, cars, and other physical assets by subscribing to an automobile insurance policy.
Other types of commercial property insurance
There might be other types of commercial property insurance meant for specific businesses like banks, hospitals, engineering companies, energy generating companies, and more.
Commercial Property Insurance Plans Available In India
| Plan Name | Sum Insured | Policy Period | Key Features |
| My Property Insurance by Digit | Up to 50 crores (for industrial properties) | 1 year | Protects property from explosions, storms, floods, burglaries, earthquakes, and fires. Option of covering either the property building or contents of the property or both. Digital friendly policy Coverage for all types of businesses Plans for shops and property renters |
| Industrial All Risk Policy by HDFC Ergo | Rs. 100 crores | 1 year | Damage to property buildings, fixtures, inventory, and other materials is covered under this policy. Loss due to business interruption is covered Applicable for different types of industries like cement, metal, paper mills, sugar factories, and many other industries |
| Shop Insurance by TATA AIG | As per the calculated value of the property and its contents. | 1 year | Protection to property from fire, aircraft damage, explosions, riots, cyclones, floods, leakages, etc. is included under this policy. Ideal policy for shops, malls, and convenience stores. Convenient online claim and service request procedure. Add ons such as loss of rent, terrorism cover, etc. can be availed with this policy. |
| ICICI Bharat Sookshma Udyam Suraksha (Fire Insurance) | Up to Rs. 5 crores | 1 year | Insures buildings, machinery, finished goods, stocks, plants and fixtures. This policy is for businesses that do not exceed Rs. 5 crore by value. Fast settlement and single documentation procedures. Coverage from fire, earthquake, and different types of perils is included in this commercial property insurance policy. |
| ICICI Bharat Laghu Udyam Suraksha Policy | Rs. 50 crores | 1 year | Meant for business risks ranging from Rs. 5 crores to Rs. 50 crores Inbuilt coverage for removal of debris, start up costs, and additions and extensions is included under this policy. Special VAS team that specializes in risk management and safety installations is included in this commercial property insurance. |
Inclusions & Exclusions Under Commercial Property Insurance
What’s Covered?
- Damage to the property due to terrorist attacks, strikes, thefts, and natural calamities are covered by a commercial property insurance policy. Commercial property insurance provides first party coverage for the tangible assets of the insured. Your leased, owned, or rented commercial buildings are insured by this type of insurance policy. The replacement cost of your building has to be calculated including the cost of:
- Fixtures
- Equipment and machines integrated permanently in the building
- Property that is used to maintain the premises and structure
- If the business is temporarily interrupted due to damages, fire, and other perils, the loss of business income is also covered under this policy. It also includes the cost required to relocate the business to a new place.
- If you have rented out a commercial building, the commercial property insurance will also compensate for the loss of rent that you can suffer if the tenant does not pay it due to a justifiable reason.
- Electronic items like computers, networks, servers, etc. are also covered under commercial property insurance policy. It also includes coverage against virus and malware attack and damage of electrical items due to power surges.
- Breakdown of machinery like boilers, processing plants, etc. is also covered under this policy. It also compensates the losses that are inflicted to your business due to damage to these items. If the damage inflicts bodily injury to your employees or others, that is also covered by it.
What’s not covered?
- Damages or losses caused due to wars are not covered by this policy.
- The equipment and machinery that is older than 10 years or more are usually not covered under this policy.
- If the loss or damage is consequential i.e. it has not directly incurred due to a peril, then it is not covered under the commercial property insurance.
- The damage caused to the property due to poor maintenance is not covered under this policy. If the damage has been inflicted purposefully or intentionally, then it is not covered.
- The vehicles used by your business are typically not covered under this policy. For insuring the commercial vehicles, you would need to avail the commercial auto insurance separately.
- Though commercial property insurance covers damages caused due to water, events like floods are not devastating in nature. Therefore, the time and costs to recover from floods may be beyond the scope of regular commercial property insurance. You can avail a separate flood insurance policy to safeguard your property from the floods.
- If you give a commercial property on rent, you cannot avail a commercial property insurance for it. Some insurance providers do not provide insurance for the property that is under construction.
Who can buy commercial property insurance?
Manufacturing companies, non-profit organizations, retail store owners, and any business that needs to secure its physical assets can buy commercial property insurance. Though it is not mandatory to have a commercial property insurance in India, the losses caused due to unprecedented events can be major. Therefore, most businesses are advised to get a commercial property insurance policy right from their onset.
Shops, cargo shipping companies, logistics companies, and any other business that provides services or products to the customers can get this policy to insure their products and machinery.
Banks and finance firms can get this insurance to insure the cash, securities, and other investments of their customers. In this case, it is specifically referred to as bankers indemnity insurance.
Things to consider while getting commercial property insurance
Type of policy
A commercial property insurance plan will either reimburse the entire cost of the replacement or the actual value of the replacement based on the depreciated value of the property. Therefore, you will have to confirm whether you are getting replacement cost coverage or actual value coverage with the insurer before getting this kind of policy. Similarly, different types of businesses can enquire for the commercial property insurance plans that suit their business.
Cost of the policy
Though it is not recommended to buy any insurance policy on the basis of its premium, you should be aware of the policy premium before getting one. A commercial property insurance premium calculator can be used to find the exact premium you would be paying on the basis of sum insured, coverage, and benefits you are expecting from the insurance policy.
You must also choose the deductible wisely while subscribing to commercial property insurance. A higher deductible means a lower premium but it also means that you will bear some portion of the losses from your pocket. A lower deductible usually means a higher premium but it also means that you pay a nominal amount while raising a commercial property insurance claim. Therefore, you must choose a deductible that is neither too low nor too high.
Get enough coverage
Getting commercial property insurance only for the building and premises is not enough. You must carefully evaluate the physical assets of your company and the potential loss they can cause due to interruption or damage. Accordingly, you can get a sum insured and coverage that is sufficient to cover all the losses.
Reputation and services
Get a fair knowledge of the reputation of the insurance company before getting a commercial property insurance policy. You must go for the company that has a fair bit of experience in insuring commercial properties and businesses. Also, check the after sale services that an insurer provides to their customers. Online customer portal, app support, and offline support through telephone are a few things that can help you during an emergency.
When can you claim commercial property insurance?
You must initiate the claim process as soon as any disastrous or catastrophic event damages your commercial building and property. Taking time to file a commercial property insurance claim can prolong the process and delay the reimbursement. The following steps will help you while claiming the commercial property insurance:
Step 1: Assess the situation properly
During an unforeseen event, you must act promptly and contact the emergency services immediately. Ensure whether the injured people are taken to the emergency ward and taken care of. While taking care of these things, do not forget to get the required reports from the emergency service providers as you would need them while claiming the insurance.
Step 2: Call the insurance provider
After taking care of the emergency, you should call the insurance provider and inform them about the event that took place. You must fill the application form and submit the supporting documents to validate your claim.
Step 3: Get the reimbursement
The documents and evidence provided by you are usually examined by a forensic expert. If the verification is successful, your application is proceeded for the settlement process. Once all the formalities are completed, the insurer will reimburse the amount required to revive your business.
Documents and evidences required to verify the claim
To verify the commercial property insurance claim, you will need to provide the following documents and evidences:
- Medical reports of the injured people
- FIR copy
- Witnesses of the event
- Third-party forensic reports
- Details of the property premises
- List of inventory, machinery, and equipment damaged in the event
- List of assets and documents damaged in the event
FAQs
1. Is it mandatory for businesses to get a commercial property insurance policy?
No, it is not mandatory for businesses to get a commercial property insurance policy. However, considering the enormity of the losses that can be incurred due to natural and man-made disasters, it is wise to get a commercial property insurance plan for your business. It provides protection from unforeseen events like earthquakes, riots, strikes, terrorist attacks, and more. Commercial insurance policy not only protects your commercial building but also safeguards the tangible assets that are confined within your business premises. Some commercial insurance policies also reimburse the financial losses that a business suffers due to business interruption.
2. Can commercial property insurance be purchased online?
Yes, several insurance providers offer commercial property insurance online these days. The premium of the insurance can also be paid online through net banking, mobile wallet, UPI, credit card, and debit card as per your preference. Some of the top commercial property insurance providers in India are listed below:
- Tata AIG
- ICICI Lombard
- Bharti AXA
- Bajaj Allianz
- HDFC ERGO
- New India Insurance
These insurance companies also provide the option of online insurance application. The renewal and claim process can also be initiated and completed online through their official portals.
3. Should home-based businesses get commercial property insurance?
Home-based businesses can also get commercial property insurance depending upon the size and scale of their business. It will provide coverage for all the physical assets of the business. Usually, home-based businesses get a business insurance policy that includes the coverage for business equipment and machinery. It includes protection from legal actions and other unforeseen risks that can lead to significant losses. The costs required to insure a home office is far less than insuring a commercial property.
4. Which factors are considered while deciding the cost of the commercial property insurance?
The factors that are considered while calculating the cost of the commercial property insurance include:
- Location of the business: The insurance cost would be more if the business is located in a cyclone or earthquake prone area.
- Construction quality: The quality of the construction materials used in the commercial building also determines the insurance cost. The insurance cost would be less if the building is made from fire-proof materials. The quality of materials used in the electrical and plumbing works is also considered while deciding the insurance cost or premium.
- Business type: The type of business also determines the insurance cost. For example, the cost of insuring an accounting firm will be far less than the cost of insuring an automotive company.
5. What are the key benefits of getting a shopkeeper’s insurance plan?
The crucial benefits of getting a shopkeeper’s insurance policy include:
- Legal liability cover is provided to all the employees working in the shop
- Any damage or loss caused to the shop property is reimbursed by this policy
- The shop building is protected from damage or loss caused due to theft, burglary, fire, and other perils.