Any business big or small, established or a start-up has to have commercial property insurance to insulate itself from unforeseen circumstances. Without it, a life time spent on carefully nurturing a venture might come crashing down in an hour. No line of business can afford to be without it, in fact it is one mandatory and regulatory stipulation that has to be followed by all – manufacturers, retailers, non-profit organisations and even service oriented businesses. While there are many aspects to commercial property insurance, it can be broadly defined as a policy that protects commercial property from such disasters as fire, theft and other natural perils.
The ambit of commercial property insurance is not simply related to land and buildings or vacant real estate land. It also covers plant and machinery, computer systems and electronic equipment used for running the business and any other machinery that is directly or indirectly related to business operations. This too includes any peril or hazard such as fire, theft or natural disasters.
However, most businesses also insure commercial property with U&O or Use and Occupancy Insurance. This is primarily related to movable assets as discussed. It provides certain coverage to property through specific endorsements of the original comprehensive property insurance policy and includes equipment that can no longer be used. It pays the insured on a valued basis, fixed amounts for each day that the equipment cannot be used for a natural peril or any other disaster. The amount that has to be paid is determined by the insurance company by reviewing the past financial records of the company as well as extent of the loss being incurred by the business due to downtime.
Unlike normal householders insurance, auto insurance or personal insurance, commercial property insurance often involves assets worth billions of dollars. This is especially true for major manufacturing companies with huge industrial lands and plant and machinery. Hence, the insurance premium too works out to very substantial sums. This is why, premium on policies for commercial property insurance are treated as business expenses for taxation purposes.
How then is the total insurable account calculated? First, businesses take the help of property settlement lawyers. They are experts in every type of property conveyancing and both large and small business houses usually invest in commercial and industrial land and property only after getting the go-ahead from professional property lawyers. Apart from determining clear marketability and title to the property, the lawyers also help in drawing up contracts after evaluating the market value. This is the rate at which land and property is sold and purchased and forms the basis of establishing insurable value.
Total insurable value is also calculated by knowing the full inventory of the building and its contents the value of which is determined by purchase and sale records shown for taxation purposes. The main part is to include all critical components that facilitate business operations. If any such equipment is excluded from the list to reduce premium amount, it can turn out to be very costly if any disaster strikes that might entail total replacement of the damaged sections.
Commercial property insurance is crucial for any business and a lot of due diligence needs to be carried out for arriving at the insurable value.