Property Insurance Basics

Property insurance covers a business's building and its contents -- money and securities, accounts-receivable records, inventory, furniture, machinery, supplies and even intangible assets such as trademarks -- when damage, theft or loss occurs. Some insurance companies offer property insurance
by named peril, such as fire and theft. Others offer policies that cover multiple perils. Most basic multiple-peril policies include losses caused by fire and theft, but business owners can purchase additional types of coverage if they need it. For example, a business in the Midwest or on the East Coast may want to purchase coverage for snow, ice or sleet damage, while businesses on the West Coast may consider an earthquake-insurance policy.

Businesses with good loss-control measures and claim histories often pay lower insurance premiums than companies with risky procedures and poor claims histories. Taking steps to prevent loss — hiring security personnel to prevent shoplifting, installing a sprinkler system to contain fires or using an alarm system to protect against theft — can help control the cost of property insurance.

Types of Coverage

Many businesses purchase property insurance through a business-owner's policy (BOP), which bundles property and liability insurance into one policy; however, since the amount of coverage available in a BOP is generally lower than in a standard property-insurance policy, companies that require a lot of coverage usually stick with a separate policy.

Some BOPs also include business-interruption insurance and extra-expense insurance -- two types of optional coverage in a property insurance policy that protect a business after a loss occurs.

Business-interruption insurance provides payments for expenses such as salaries, taxes and debts, as well as any loss of profit due to the interruption of business.

Extra-expense insurance pays the costs of temporarily relocating a business when a covered peril occurs. For example, if a fire destroys a clothing store, extra-expense insurance will pay for a business to resume operations and cover such expenses as buying or leasing equipment, getting new merchandise and notifying customers about changes that have occurred.

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