This is perhaps one of the most important and complex coverages that every business needs. There are several coverages and coverage options to consider.
Property Insurance is designed to replace property damage arising from claims covered under the provisions of the policy. Determining whether a claim is caused by a “covered peril” is often difficult and confusing. “Peril” refers to what caused the damage to happen in the first place. Some instances are obvious such as fires or vandalism. Other causes of damage can be more confusing such as Off Premises Power Failure or Sprinkler Leakage.
Once it has been determined the insurance policy will respond and cover the damaged property, valuation and co-insurance can rear their ugly head to make the claims settling process difficult.
Valuation is easier to determine. There are three basic valuation coverages insureds can accept.
- Replacement Cost, the cost to replace with like kind and quality.
- Actual Cash Value, cost new less depreciation.
- Functional Replacement Cost, cost to rebuild with a functional building.
Some of the basic property coverages are:
BUILDING – Covers buildings against direct physical damage, subject to standard policy exclusions. Valuation can be based upon Replacement Cost or Actual Cash Value.
BUSINESS PERSONAL PROPERTY – Covers personal property and contents against direct physical damage subject to standard policy exclusions. Valuation can be based upon Replacement Cost or Actual Cash Value
LOSS OF INCOME – This is perhaps the most important part of any insurance policy. Covers loss of income less non-continuing expenses due to the necessary suspension of business operations during the period of restoration. Interruption must be caused due to damage at the described location and caused by a covered peril. There are several options to the loss of income form, you can choose to include payroll for certain employees or choose to insure only the net income. One of the best forms of coverage you can find is Actual Loss Sustained for 12 Months (ALS). This coverage pays your actual loss of income for up to 12 months. Consult carefully with your agent to find the right coverage for your business.
LOSS OF INCOME FROM DEPENDENT PROPERTIES – Covers loss of income from a business or source of materials that your business relies upon in order to sell your products of services. An example would be if your business manufactured computer boards and utilized chips that were only made by company XYZ. If company XYZ were to suffer a loss preventing production of their chips, your company could also suffer a loss. This endorsement protects your business for just such a loss.
LOSS OF RENTS – Covers the loss of anticipated gross rental income, all transferred charges, back to you the insured which are the legal obligation of the lessee and the fair rental value of any portion of the property occupied by the insured.
EXTENDED LOSS OF INCOME COVERAGE – most forms of business income coverage pay you the lost income for the period the business was closed. In some cases it may take your customers extra time to find out you have once again opened your doors. Consequently your income after re-opening is less than normal. By purchasing this endorsement you can buy coverage to pay the difference in income for a short amount of time, usually 3-6 months. Very necessary for restaurants.
EXTRA EXPENSE – covers the necessary additional expenses and charges incurred in order to continue as nearly as possible the normal conduct of business following a covered loss. Examples would be the extra costs to rent a temporary facility and equipment to keep your business functional during a loss.
EARTHQUAKE – Covers against direct physical damage caused by an earthquake, subject to standard policy exclusions.
EARTHQUAKE SPRINKLER LEAKAGE – Covers against direct physical damage caused by leakage of your fire sprinkler equipment due to an earthquake.
FIRE LEGAL LIABILITY – Covers rented or leased building against direct physical damage due to Insured’s negligence that results in Fire Damage Only. It is important for insureds to have the fire legal liability limit equal to the amount it would cost to rebuild the structure you rent in the event of a full fire loss.
PERSONAL PROPERTY OF OTHERS – Covers the personal property of others in your care, custody or control. Examples, dry cleaners, repair shops, auto repair shops etc.
BUILDING ORDINANCE – Covers the enforcement of any building, zoning, or land use law to the undamaged portion of the building caused by ordinances or laws that require demolition or regulate construction, repair, zoning, or land use. Coverage is included in building limit.
INCREASED COST OF CONSTRUCTION
DEMOLITION – Covers the cost to demolish a building or other structure due to an enforcement of a building ordinance.
OFF PREMISES POWER FAILURE – Covers direct and consequential loss to the insureds premises or business due to a power failure caused away from the insureds premises. An example would be if the local power company has an outage causing your restaurant to close down for lunch causing you an income loss.
BOILER and MACHINERY – MECHANICAL BREAKDOWN
- MECHANICAL, ELECTRICAL PRESSURE EQUIPMENT – Covers sudden and accidental mechanical breakdown of refrigeration and air conditioning equipment, pressure vessel, pressure boilers, etc., including processing and production equipment.
- CONSEQUENTIAL DAMAGE – Covers loss due to the spoilage of property from lack of power, light, heat, steam, or refrigeration, resulting from a covered cause of loss.
It is important to also consider what causes of loss you wish to purchase. This will determine whether or not damage to property is covered under the insurance policy.
Always consult with an insurance professional to determine the coverages best suited for your business.