Why do I need property insurance?
Businesses buy property insurance for the same reason that we buy homeowners or renters insurance. We want to protect our stuff!
You work hard for every dollar that you make. Bootstrapped, venture-backed or public — it doesn’t matter. Every company wants to know that the money they put into physical property isn’t going to be wasted.
But if there’s a fire or an earthquake or burglary and you aren’t properly insured, isn’t that exactly what would happen? Your hard-earned money is just gone. If you lose property that belongs to someone else, their hard-earned money is gone too.
Let’s play out this hypothetical using a weekend office fire as an example. (Since fire is the cause of billions of dollars worth of commercial property damage each year, it’s a good place to start). We know an insurer would reimburse you for the lost computers and desks. That’s great! But unfortunately it’s not the end of your problems.
How’s everyone going to work on Monday morning?
Your space is destroyed. Even if it wasn’t, the fire department isn’t letting you back in. Unless your team is 100% remote, you might have to pay for a temporary space. You may even have to stop doing business for some time.
So in the middle of this nightmare, you’re figuring out what property was lost. You’re looking for a new temporary space and working with your current and new landlords. You’re watching your cash flow slow to a trickle. Customers want answers. Employees are panicked.
That’s where property insurance comes in.
What is it?
Property insurance is an “indemnity” policy. This means that the policy is designed to reimburse the company for losses it directly experiences.
Unlike “liability” policies, indemnity policies don’t require legal action (like a demand letter from a lawyer) for coverage to start. Once the property is damaged or destroyed, the claim process can begin.
Business personal property (BPP) losses are some of the most common insurance claims. Chances are this is what you imagine when you think of property insurance. It would reimburse the company for things like desks, computers and covered inventory after a fire. If your policy offers theft coverage, the impact of a burglary is reduced too. Your property insurance carrier is going to reimburse you for the stolen BPP.
Business income and extra expense coverage addresses some other expenses that sneak up. If a covered loss forces you to shut down operations, property insurance should reimburse you for income lost and payroll spent during that period of interruption. If you can’t shut down and need to rent a temporary space, your policy should pay that cost.
If you own your building, property insurance is particularly important for you. Here, a fire doesn’t just mean lost computers and extra rent…you have a massive recovery project on your hands. A property insurance policy that includes building coverage would reduce your exposure to the litany of surprise demolition, clean-up and construction costs.
Property insurance policies can be tailored to address your exact needs. What if you have very few computers but a ton of manufacturing equipment, or vice versa? And would your business be impacted by an equipment breakdown? Or a flood? What happens if other people’s property is destroyed while in your care? How about BPP occasionally moving from location to location…is this a part of your operation? Do you experience seasonal swings in inventory which make maintaining the right policy limits a challenge?
Heartburn? Upset stomach?
We know, it sounds like a pharmaceutical commercial but that’s basically what the carriers want you to realize: they’re selling the remedy to a variety of situations that are both common and potentially fatal.
Carefully considering each of these questions (and several others) is critical for managing risk. Their answers will determine the kind of property insurance you need. That said, figuring out how to maximize your coverage while not overpaying premium isn’t easy to do on your own.
How do I protect my company and myself?
Want to read more on the subject? Check out our blog posts on property insurance.
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