What Happens If I Don't Have Commercial Property Insurance?


Oct 30, 2020

Why Is Commercial Property Insurance So Important?

When people think of Business Insurance, Commercial General Liability often comes to mind first, but Commercial Property Insurance is usually close behind and is just as equally important if you have a brick-and-mortar location. Just like your home, condo or apartment, a commercial property is a major investment that can suffer physical damage; having the right, preemptive insurance coverage is needed to protect your finances and business if a claim does happen. To help explain why is commercial property insurance important, we broke down what is commercial property insurance, how it works, common misconceptions and what happens if you don't have it.

What is Commercial Property Insurance?

Commercial Property Insurance, in general terms, provides financial protection for physical loss or damage to tangible assets you own, rented or are required to insure.

For example:

  • Buildings,

  • Tenants Improvements,

  • Equipment,

  • Furniture,

  • Fixtures,

  • Inventory,

  • Glass

  • And so on.

It covers these assets against perils such as fire, water, theft or vandalism - even if the loss was accidentally caused by you.

How Does Commercial Property Insurance Work?

Commercial Property Insurance has two key coverage and settlement types:

Coverage Types

Broad: This means everything is covered subject to the exclusions. This is the most common form and, in some cases, may be referred to as “All-Risk”.

Named Perils: This means only the specific perils listed have coverage. This is less common but there has been an increased usage - given the hard market the insurance industry is currently experiencing. Water damage is not usually a named peril, meaning it will be excluded from coverage; and thus, Commercial Property Insurance policies with Named Perils coverage are not ideal and should only be used as a last resort.

Settlement Types

Replacement Cost: This means that the settlement you will receive after a claim is based on what it would cost to replace or repair the loss or damaged tangible asset. Note, it is the insurance provider’s choice to choose to replace or repair the damaged property.

Actual Cash Value: This means that the settlement is based on the cost to replace minus the depreciation of the asset at the time of the loss. Again, the insurance provider has the choice to repair or replace based on the calculation of the Actual Cash Value.


Like Home Insurance, certain terms and conditions can limit the amount that will be paid out for a specific peril or a specific line of coverage. As natural disasters continue to increase every year, it is becoming common place to see Water Damage Sublimits on Commercial Property Policies for buildings that have previous water damage losses, are close to bodies of water or are older. Being unaware of a sublimit could have devastating impacts on a business and its financial future.

It is important to be aware of the coverage and settlement types and sublimits when buying Commercial Property Insurance as these aspects can severely limit coverage and settlement amounts. We recommend speaking with an insurance professional to review and provide suggestions; our Foxquilt team is happy to look at your scenario and provide a customized solution for your business.

What Happens If I Don't have Commercial Property Insurance?

If you don't have Commercial Property Insurance, you may be responsible for replacing or repairing property that is lost or damaged with your own finances. Having to pay out of pocket for property damage could be a huge financial drain; especially for small businesses with less resources, this could close down your business.

It is also important to remember that you may be responsible to insure things that you rent or borrow from others. In addition, Commercial Property Insurance is a foundational coverage; this means many extensions and additional coverages, such as Business Interruption or Rental Income, can also be provided when Commercial Property Insurance is purchased.

Common Misconceptions

"But the Tenants Improvements Were Already Installed When I Leased This Unit?"

A common misconception is what you are required to insure even if you do not own or pay for the property that is associated with the insurance coverage. Landlords can require tenants to purchase insurance for things like tenant’s improvements, glass, furnace or other property even though the tenant did not purchase or own the property. It is important to review your lease agreement and have a discussion with an insurance broker to ensure all insurance requirements of the lease are met.

"My Loss Will Never Be More Than 'X' Amount, So I Only Need That Much Insurance."

Commercial Property Insurance policies have a special provision to ensure that you purchase sufficient limits of insurance and not what your expected loss is. In most cases, it's very unlikely that a 10,000 square foot building will be completely destroyed by a fire, which is why a business owner may assume they only need to purchase insurance for the expected loss of 3,000 square feet. However, insurance policies have a policy condition called "Co-Insurance," which require that you insure the building to, at least, a specified percent of the total replacement of a building. The most common percentage is 90%. Although your expected loss may be only 30% of the building, you need to purchase an insurance limit sufficient to satisfy the Co-Insurance clause. Additionally, this provides the most of peace of mind; remember, it is unlikely that an entire building can be destroyed but not necessarily impossible.

Like Commercial General Liability Insurance, Commercial Property Insurance is a foundational coverage that we highly recommend most businesses, with physical locations, purchase to fully protect their hard work and investments. Not only is it a prudent way to protect your property in the face of physical damage, many additional insurance extensions, used to further protect your business, are based on the purchase of Commercial Property Insurance. It is also important to note that Commercial Insurance is often a necessary component of your business' growth journey as landlord, lenders and finance companies usually require seeing an insurance policy.

Our Foxquilt team understands that not every business or building is the same; you deserve Commercial Insurance tailored to your unique business needs. Our team of experienced insurance professionals can help determine the right coverages and policies that you need and provide exclusive discounts on your rates. Insurance should be smarter, simpler and faster; Foxquilt does that for you. Start a quote with us today.

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