Getting to Know Your Property Policy

Understanding the who, what, when, where and how of your property policy can ensure you have the coverage you need, when you need it.

Who

Business property policies cover real estate and personal property owned by the “named insured.” The policy lists this person or entity on the declarations page, located near the front of your policy packet. Be sure to review your policy to ensure your organization’s name and address are listed correctly.

Tip: When a business is involved in an acquisition, merger or sale, the other entity’s coverage does not automatically apply. Many business insurance policies have non-assignment clauses. These prevent a policy owner from transferring coverage to another person or entity without the insurer’s written consent. Any sale, acquisition or merger creates new risk exposures, so please contact us for a policy review.

Tip: Your property policy also provides some coverage for the personal property of others on your premises. This could include property of others in your care, for storage or repairs. It can also include leased personal property, such as equipment, that you have a contractual responsibility to insure. It also includes the “personal effects and personal property of employees” in or within 1,000 feet from your “described premises.” Coverage for employees’ personal property applies only after the employee’s coverage has paid for any loss or damage claims.

Older property policies usually provide only actual cash value coverage on the personal property of others. Actual cash value equals the current value of an item, or its value minus depreciation. Replacement cost coverage will pay the cost of replacing lost or damaged property with something of a comparable kind and quality, with no depreciation. Replacement cost coverage costs more, but your claims settlement will be higher.

What

The standard commercial property policy covers both real property (buildings and structures) and personal property. It limits coverage on structures to the building on “described premises” and any structures within 1,000 feet of the “described premises.” This can include additions; permanently installed fixtures, machinery and equipment; and equipment and other personal property used to maintain or service the premises.

Tip: Standard policies exclude coverage for structures such as paved surfaces, retaining walls, foundations; underground pipes, flues or drains; fences and antennas. It also excludes certain types of personal property, including “valuable papers” (bills, currency and securities), electronic data; trees, shrubs and plants; fragile articles; and valuables such as jewelry, watches, furs and precious metals. You can buy separate coverage for some of these items; please contact us for information.

When

Your policy will cover any scheduled (listed) real and personal property from damage that occurs during the policy period.

Tip: Your policy will cover newly acquired or constructed property for a maximum of 180 days after acquisition or construction. To ensure coverage after that, you must notify your insurer to add (schedule) coverage. The 180-day coverage limit also applies to your personal property at newly acquired or constructed buildings.

Where

Your policy protects your covered personal property, no matter where it is located. It even covers personal property at “other locations.” The standard policy defines this as more than 1,000 feet from the “described premises.”

Tip: Your property policy will also cover personal property in transit. This coverage applies if your property is in vehicles owned, leased or operated by you, or in the custody of a common carrier, contract carrier or registered mail carrier. It does not apply if you are transporting cargo for a fee.

How (Much)

The most your policy will pay for loss or damage is the “limit of insurance” noted in the policy declarations. The limit applies “per occurrence,” or covered incident.

After a covered claim occurs, you’ll pay the deductible amount out of pocket, then your insurer will pay the remainder of the claim amount, up to the policy’s limit.

Tip: If you insure your property on a replacement cost basis, the insurer will penalize you if you underinsure it. Standard policies require insureds to insure their property to at least 80 percent of value. If a loss occurs and your coverage doesn’t meet that insurance-to-value ratio, the policy will pay your loss on an actual cash value basis instead.

For example, if you have a building and contents worth $1 million, you should have at least $800,000 in coverage. Although you meant to update your policy limits, you never did… and your policy has limits of only $600,000. A fire destroys everything. The insurer will penalize you by paying only the actual cash value of your lost building and personal property, up to the $600,000 limit. That oversight could cost you hundreds of thousands of dollars.