How Is Your Commercial Property Insurance Premium Calculated?

No two businesses are exactly alike. No two business insurance policies are alike either. If you’ve been comparing insurance plans, you know exactly how true that is. You might be wondering why your plan is so different from your competitors or why there are so many different options. There are 7 factors that go into setting the price of your premium. Here’s an inside look into how your insurance company decides exactly how much to charge you.

1. Coverage Form

woman in a business uit with a form in her hand and pen in the other.


Getting insurance for your business can seem like being in an endless sea of forms. Property insurance is no different. The first factor that goes into deciding your premium is the coverage form, which lists all the specific things that you need insured, like your building and its contents. Some commercial property insurance includes business interruption insurance,  which covers any loss of income you might experience while repairing damaged property. That means your coverage form could also include “lost income” on its list.

2. Cause of Loss Form

The next factor that insurance companies use is the cause of loss form. This form details the risks that you want your business to be insured against and can include various natural and man-made disasters – anything that can cause damage to your business. You decide how much coverage you want (and how much you’re willing to pay) by choosing between a basic, broad, or special causes loss form. 

Basic and broad policies are what is known as “named peril,” meaning they cover only what is specifically listed in the policy. The only difference between them is that broad forms cover a few more events than basic forms. A special cause of loss form, on the other hand, provides what is known as “all risks” coverage, meaning anything that isn’t specifically excluded from the policy is covered.  

3. Building Construction

Your insurance company will also want to know how likely your building is to be seriously damaged in case of a disaster. To figure this out, they will look at what materials went into the construction of your building. This will help them decide how likely it is to be destroyed by something like a fire or an earthquake. 

4. Occupancy

building next to each other, one painted red and one painted green.
Who you share your building with, or how close you are to other businesses will also affect your premium price.

Who you share your building with, or how close you are to other businesses will also affect your premium price. For example, if you run a stand-alone clothing or gift boutique, then your premium would be less than it would be  if your shop shared a wall with a restaurant with deep-fryers. 

5. Property Location

Where your business is located obviously also matters. Being near the ocean, or a river, can spell disaster in case of flooding – and that means higher premiums. Your insurance company will look at how likely you are to be affected by disasters like hurricanes or earthquakes. They will also take into consideration whether you are in an urban or rural area. Businesses in a rural area might have more trouble accessing emergency services like a local fire department, and businesses in an urban area might be more prone to things like vandalism.

6. Amount of Insurance Being Written

This one doesn’t require too much explanation: the more insurance coverage you want, the higher your premium will be. If you have a huge building with a lot of expensive inventory, or an office that is filled with high-tech equipment, and you want maximum coverage, you’re obviously going to pay a higher premium.

7. Applicable Coinsurance Requirement

caucasian hand pulling a credit card out of a black waller while sitting in front of a laptop.
Some insurance companies have what is known as a coinsurance requirement written into their policies.

Finally, some insurance companies have what is known as a coinsurance requirement written into their policies. Most insurers that have one of these requirements will ask that you maintain coverage for at least 80% of the value of your property. If you fail to do this, you will be penalized and will not receive a full payout in the case of claim. If your company has a coinsurance requirement, then you know that you’ll have to pay a high enough premium to cover at least 80% of your property.

Insurance companies have ways to protect their bottom lines, and you should, too. It’s important to protect your business with commercial insurance – and it’s important to make sure you have the right coverage. That’s where EZ.Insure can help. We’ll answer all your questions, find you the best policies at the best prices, and even sign you up when you’re ready – all for free. When it comes to insuring your business, knowledge is power! To get started with us, simply enter your zip code in the bar above, or you can speak to an agent by calling 888-615-4893.

About The Author: Cassandra Love

With over a decade of helpful content experience Cassandra has dedicated her career to making sure people have access to relevant, easy to understand, and valuable information. After realizing a huge knowledge gap Cassandra spent years researching and working with health insurance companies to create accessible guides and articles to walk anyone through every aspect of the insurance process.
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