How to Choose the Right Property Insurance Plan for Your Business
If your business is forced to temporarily shut down due to property loss, you may not have the available capital to replace damaged assets in a timely manner, especially if your main source of income has been compromised. Indeed, FEMA estimates that 40 to 60 percent of small businesses never reopen their doors following a disaster. While it’s not always possible to prevent misfortune, having the right property insurance plan can help you more easily recover your losses post-disaster.
Of course, not all businesses require the same protection. To determine the best property insurance plan for your business and avoid paying for coverage you don’t need, consider the factors mentioned in this post.
Four Components to Consider When Selecting Your Business’s Property Insurance Plan:
1. Your Property and Physical Assets
Whether you own or lease your business location, property insurance can be advantageous (and may be required, depending on the building’s bylaws). In addition to protecting buildings and land in the event of disaster, property insurance covers exterior fixtures, office equipment, computers, machinery, and inventory, among various other physical assets. It also covers other people’s property, which can be extremely important if you run a service business and have customer belongings in your possession. The more property you own or are responsible for, the more coverage you’ll likely need.
2. Business and Geographic Risks
Depending on your business’s industry, you may be more susceptible to certain risks. For example, companies that handle toxic chemicals or other potentially dangerous materials may be at risk for explosions, while businesses that sell or repair valuable goods are often more prone to vandalism and theft. Additionally, if business operations are dependent on heavy machinery and equipment, you may want to consider an insurance plan that reimburses you for lost income if you’re temporarily displaced.
Your geographic location is another important factor when determining which plan you’ll need. For example, if you’re located in the Midwest, tornadoes may be a frequent threat, while businesses in California may be more concerned about fires. Although property insurance typically doesn’t cover damage from earthquakes or flooding, if you’re based in an area where either is a risk, you might consider adding to your policy.
3. Necessary Coverage Level
In general, there are three types of business property insurance — basic form, broad form, and special form. The type you select determines the extent of your coverage, which can range from property loss resulting from catastrophes such as fire, lightening, storms, and explosions to other perils like burst pipes, riots, and civil commotion. Additionally, you have the option between actual cash value coverage, which reimburses you for the assessed value lost after depreciation — and tends to make sense if you can easily replace your equipment with used equipment — or replacement value, which is more expensive but doesn’t deduct depreciation from your compensation.
When evaluating property insurance plans, you should also consider what other types of business insurance you may need. Bundling your policy with general liability insurance and/or business interruption insurance can expand your coverage while lowering your overall cost.
4. Your Budget
Like most business decisions, your budget will largely determine which insurance plan best suits your needs. As a small business owner with limited funds, it’s important to evaluate all your options to find the best coverage for the lowest cost. Although thoroughly researching your choices may require some time, the right policy may yield big savings in the long run.
Protecting your business operations and earnings potential in the event of catastrophe is one of the most important steps you can take as a small business owner, which is why property insurance is a critical component of your disaster recovery and business continuity plans. As there’s no one-size-fits-all approach, you’ll need to consider your unique circumstances to determine the best plan for your business while staying within your budget.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.