Commercial Property Insurance 101: A Comprehensive Guide

Commercial property insurance is an important form of coverage that helps protect businesses from financial losses due to unexpected events. It is essential for business owners to understand the different types of coverage and how they can be used to protect their businesses. Most businesses understand this.

Hence, the global commercial insurance market is on the rise. According to data from Allied Market Research, the global commercial insurance market is expected to grow to $1,613.34 billion by 2030 at a CAGR of 9.7%.

This article provides a comprehensive overview of the different types of business property insurance and how they can be used to protect a business. This article will give business owners the information they need to make an informed decision when choosing the right coverage.

Defining Commercial Property Insurance

Commercial property insurance refers to any type of insurance that protects a business’s physical assets, or “real” property, against loss or damage. Business property insurance can include anything from the building itself and its fixtures to machinery, equipment, and inventory.

Commercial property is different from homeowners insurance in several key ways:

  • It’s broader in scope. Homeowners’ policies typically only cover belongings inside your home and your dwelling itself, not the land it sits on or anything outside. In contrast, commercial policies are often much broader in coverage because they are intended for businesses that operate within a specific space as part of their operations.
  • It’s more specialized because of the distinction between personal and professional spaces, and so many different types of businesses exist. Various commercial policy plans are available today, such as fire & allied lines, flood & storm, earthquake, general liability, crime, etc.

Using the Right Terminology in Your Insurance Search

To find the right insurance policy for your commercial property, it’s essential that you use the correct terminology in your search. If you don’t, you might end up with a policy that doesn’t cover all the risks associated with owning a business or renting out commercial space.

For example, suppose you are looking for coverage against fire damage and vandalism in an apartment building and enter “apartment building insurance” into an online search engine. In that case, many providers will try to sell you general liability coverage. The same goes if you mistakenly type “rental property insurance” instead of “commercial property insurance.”

What Types of Coverage Do You Need?

To determine what coverage you need, let’s go over the most common types of commercial property insurance.

  • Business interruption insurance protects against lost income if your business cannot operate due to a covered loss. However, this coverage doesn’t protect against the actual damage itself.

For example, if you have a fire at night and it causes extensive water damage to your building and everything in it, including inventory and equipment, your business interruption policy will pay out a certain amount based on how long it takes for operations to resume at normal capacity.

But if your building needs extensive repairs or rebuilding, this policy will not cover these expenses. However, these insurances are only available for small and medium-sized businesses. Data shows that only companies with less than 100 staff or revenue below $5 million are eligible for this insurance. Such insurance can primarily help after a disaster strikes. According to data, 25% of businesses don’t reopen after a disaster strike. The money from a business interruption operation can help companies continue.

  • Property insurance covers losses when an insured item is damaged or stolen by something other than one of the perils, like fire, lightning, or vandalism. This includes damages caused by heavy wind gusts through broken windows, falling tree branches, hail storms, hurricanes, earthquakes, volcanic eruptions, etc.

You get the idea! This coverage also protects against accidental discharge from sprinkler systems onto carpeting below them and settlement cracks that may occur over time within concrete slabs due to shifting soil underneath them.

Getting such commercial insurance is vital for continuous operations. According to a survey from AdvisorSmith, 3 in 4 (76%) small companies faced insurable events. Of these, 26.5% faced property damage due to fire or weather events.

Determining How Much Commercial Property Coverage You Need

To determine how much commercial property coverage you need, you must first identify the risk involved in owning your property. Risk assessments are generally performed by insurance companies and can be done at no cost to you. Your insurance agent can help you obtain a risk assessment from an insurer or third-party administrator (TPA).

After the assessment is complete, it should outline all risks involved with your business by listing items such as:

  • Type of property ownership
  • Age and condition of the building
  • Number of tenants occupying individual units within a building
  • Annual income generated from each unit within the building

A risk assessment plan will then outline how to mitigate these risks based on recommendations made during the risk assessment report analysis. Based on this analysis, you could determine the coverage you need and the premium cost you might incur.

What Damages Are Covered Under Commercial Property Insurance?

As a business owner, you want to be sure that your property is covered in the event of an unfortunate incident. While most commercial property insurance policies will cover damage from natural disasters and other incidents, some specific items may not be protected under your policy.

If you’re unsure about what kinds of damages are covered by commercial property insurance, here’s an overview:

  • Normal wear and tear: This type of damage occurs over time as a result of everyday use. For example, if your carpet starts to show signs of wear because it was installed in the wrong place or if paint fades due to exposure to sunlight when windows aren’t tinted correctly, these types of damages aren’t generally covered by most policies.
  • Accidental causes: Certain events like fire or theft could cause extensive harm to your building but don’t count as normal wear-and-tear on the property itself. These circumstances would fall under accidental causes and should be covered under any commercial property policy. According to the U.S. Fire Administration, there were 103,400 nonresidential fire events in 2020, causing a loss of over $3 billion in damage.

What Damages Are Not Covered Under Commercial Property Insurance

There are many reasons why your property insurance policy may not cover damages related to the following events:

  • Not caused by a covered peril: If a natural disaster strikes, but you didn’t have commercial property insurance in place at the time of the loss, you won’t be able to make any claims for reimbursement.
  • War and nuclear hazard: War or nuclear hazards are excluded under most policies because they’re so unlikely they can’t be accurately predicted or even insured against. While these risks aren’t often applicable when it comes down to commercial real estate property insurance, it’s still good practice to know what is or isn’t covered under your policy so that, if necessary, you can seek out additional coverage if needed.


Commercial Property Insurance is a complicated topic. Knowing the ins and outs of this type of coverage is important before you buy it. Hopefully, this post has given you some insight into commercial property insurance, how much coverage you need, and what types of damages it covers.