Do You Need Commercial Property Insurance?

Even though your landlord has insurance on the building, it won't cover any of your business property. You're responsible for your equipment, inventory, furniture, and any improvements you've made to the space.

Most commercial leases require tenants to carry business property insurance, and many specify minimum coverage amounts. Check your lease agreement carefully because you might also need to cover improvements and betterments like custom lighting, flooring or built-in fixtures you've added.

Owning your building makes commercial property insurance critical. You'll likely need higher coverage limits than businesses that rent since you're responsible for protecting both the structure and everything inside it.

A fire that destroys your $200,000 building plus $50,000 in equipment creates a much larger financial risk than just replacing equipment alone, which is what renters cover. If you're still paying off your property, your mortgage lender will almost certainly require building coverage to protect their investment.

Many lenders require commercial property insurance when your business assets serve as collateral for a loan. If you finance equipment, the lender technically owns it until you finish paying, so they'll require insurance that pays them directly if something happens to that equipment.

SBA loans require business property coverage (which they call "hazard insurance") on all business assets used as loan collateral, and SBA disaster loans over $25,000 also require this coverage when collateral is involved. Federal government contracts may also need property insurance when circumstances make it necessary to protect the government.

Business lines of credit also require property insurance if you've used business assets to secure the loan. Your policy protects the lender's investment because if your equipment gets destroyed, the insurance pays to replace it, which reduces what you still owe on the loan.

Your homeowners insurance typically covers business property up to only $2,500. If your home office setup includes expensive computers, specialized equipment or inventory worth more than this limit, you'll need commercial property insurance to cover the difference.

Auto repair shops, dry cleaners, computer repair services and similar businesses handle valuable items that belong to their customers every day. Your customers' insurance won't cover their property while it's in your possession. That's your responsibility.

This coverage is called "Personal Property of Others" and is part of most commercial property policies. It protects you from paying out of pocket when customer property gets damaged, stolen or destroyed while under your care. Without it, you could face expensive lawsuits and damage to your business reputation.

Although you're not legally required to buy commercial property insurance, you'll likely need it. Your policy protects your building, equipment, inventory and any customer property while it's with you. But it won't cover lawsuits or lost income during closures, so add other types of coverage, such as general liability and business interruption, for complete financial protection.