No state requires commercial property insurance to operate, but most businesses need it because of contractual requirements from landlords and lenders.
Do You Need Commercial Property Insurance?
Commercial property insurance isn't legally required, but landlords, lenders and lease agreements will likely make it necessary for your business.
Discover low-cost commercial property insurance below.
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Updated: August 29, 2025
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Key Takeaways
No state requires you to carry commercial property insurance, but it protects your business assets whether you own, rent or finance your space.
It protects your building, business equipment and inventory, plus any customer property you're temporarily holding.
You may also need general liability, business interruption and workers' compensation for full coverage, depending on your business needs.
How Does Commercial Property Insurance Work for Small Businesses?
Commercial property insurance covers your building structure, office equipment, inventory and customer property temporarily in your care when incidents like fires, theft or storms happen. It helps replace damaged property and keeps your business operations running.
Three coverage levels determine how comprehensive your financial protection is:
Basic Form (Named Perils)
Only specific disasters listed in your policy are covered. Common perils include fire, lightning, explosion, windstorm, hail, smoke, vandalism, sprinkler leakage and sinkhole collapse, but each insurer's list varies. Check your policy to see what it includes or speak with your agent. If the cause of damage isn't named, coverage won't apply.
Broad Form
Everything from Basic Form plus additional perils like falling objects, snow/ice/sleet weight, water damage from plumbing systems, electrical damage and specific types of collapse. This middle option offers more protection than basic but is less expensive than full coverage.
Special Form (All-Risk)
Covers all causes of loss except specific exclusions, like floods, earthquakes, war, nuclear hazards and normal wear and tear. Coverage applies unless your policy explicitly excludes the cause of damage.
Do You Need It if You Rent or Lease Your Business Space?
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.
Do You Need It if You Own Your Business Building?
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.
Do You Need It for Loans and Contracts?
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.
Do You Need It if You Work From Home?
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.
Do You Need It if Customers Leave Property With You?
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.
Is Commercial Property Insurance Enough?
Commercial property insurance protects your physical assets, but it won't cover all the risks your business faces. You'll need additional coverage to fill gaps and protect against income loss, liability claims and specific risks:
This covers lost income and ongoing expenses when property damage forces you to close temporarily. | This coverage is best for businesses that would lose significant revenue during repairs or rebuilding. | |
This protects against lawsuits from property damage or customer injuries your business causes. | This coverage is best for any business that interacts with customers or the public. | |
This pays for medical costs and wage replacement when employees get hurt at work. | This coverage is required by law for most businesses with employees. | |
This covers data breaches, cyberattacks and privacy violations. | This coverage is best for businesses that store customer data or rely heavily on technology. | |
This protects against claims of errors, omissions or negligence in professional services. | This coverage is best for service-based businesses like consultants, accountants or contractors. | |
This covers vehicles used for business purposes. | This coverage is best for businesses that own vehicles or use personal vehicles for work. | |
Equipment Breakdown | This covers repair costs and lost income when essential equipment fails. | This coverage is best for businesses dependent on machinery, HVAC systems, or specialized equipment. |
A Business Owner's Policy (BOP) bundles liability coverage, property protection and business interruption insurance into one policy, often costing less than buying each type separately.
Commercial Property Insurance Requirements: Bottom Line
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. Just remember it won't cover lawsuits or lost income during closures, so add other types of coverage like general liability and business interruption for complete financial protection.
Do I Need Commercial Property Insurance: FAQ
We've answered the most frequently asked questions about commercial property insurance requirements to help you determine if you need coverage:
What does commercial property insurance actually cover?
It protects three main areas: your building, business equipment like computers and inventory and any customer items you're temporarily holding. Coverage applies when damage occurs from fires, theft, storms and other disasters, with the extent depending on your policy level.
Is commercial property insurance required by law?
No state legally mandates it for business operations. You'll likely need it because of lease agreements, loan requirements or lender stipulations. Most SBA loans exceeding $25,000 and commercial leases include this coverage as a contractual requirement you must meet.
How much does commercial property insurance cost?
Costs vary based on your property value, location, business type and coverage level. Building owners generally pay more than renters since they need financial protection for both structure and contents. Shop around and compare prices for your specific situation.
What's the difference between the three coverage levels?
The Basic Form covers only the specific disasters listed in your policy, such as fire and theft. The Broad Form includes those risks plus additional ones like water damage. The Special Form offers comprehensive financial protection, covering all causes except specifically excluded items like floods and earthquakes.
Do I need commercial property insurance if I work from home?
You'll want coverage if your business equipment exceeds $2,500, since homeowners policies typically limit business property coverage to that amount. Anything above it, whether computers, specialized equipment, or inventory, would need separate commercial protection to avoid gaps.
What other insurance do I need besides commercial property coverage?
You should also consider general liability for lawsuit protection, business interruption for lost income coverage and workers' compensation if you have employees. Depending on your industry, cyber liability, professional liability or commercial auto insurance may also be essential for full coverage.
Does commercial property insurance cover customer property?
Yes, most policies include "Personal Property of Others" coverage for this purpose. Auto repair shops, dry cleaners and computer repair services especially benefit from this insurance since they handle valuable customer items daily. You'd be personally responsible for any damage to customer property without it.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.
sources
- Insurance Information Institute. "Insuring Your Home-based Business." Accessed August 25, 2025.
- U.S. General Services Administration. "Subpart 28.3 - Insurance." Accessed August 25, 2025.
- U.S. Small Business Administration. "Physical Damage Loans." Accessed August 29, 2025.
- U.S. Small Business Administration. "Terms, Conditions, and Eligibility." Accessed August 25, 2025.