How Is My Commercial Property Insurance Premium Calculated?

How Is My Commercial Property Insurance Premium Calculated? text overlaying image of a bag of money and wooden buildings Almost any time of the year, fires, floods, storms, hurricanes, and many other disasters can cause a lot of damage to homes and businesses. One of the first things a business owner should do to protect their investments from natural disasters is buy business insurance, specifically commercial property insurance. Commercial property insurance is a type of property loss coverage. It protects your business from damage caused by things like bad weather, theft, and vandalism. 


This coverage is different from homeowners’ insurance in many ways. Because if a business is ruined and can’t run for a while, there are more expenses to worry about. Since business costs don’t stop if the building is in disarray, a disaster can cause a loss of business in the future. Which can lead to a loss of income while the building is being fixed. Commercial property insurance and the purchase of add-ons to the policy can help cover the costs of repairing the property and keeping the business financially stable in the meantime. But how are the rates for this type of coverage determined? 

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The Equation

Your underwriter will use all of your data and information you send to plug into an equation to figure out the premium. To start you’ll submit a statement of values (SOV) to your insurance company.  A SOV is a thorough list of your assets that your insurance company will use to figure out how much it would cost to replace all of your business’s property and equipment. The total sum of your SOV is now added to your expected business income for the upcoming year. Giving you your total insurable value (TIV).


Your underwriter will then take your TIV and multiply it by your exposure risk rate, which is decided by the rating agency your insurer uses, divided by $100. This sum will give you your premium. Say your TIV is $1,000,000, and your exposure risk rate is $0.4 per every $100. The equation would be $1,000,000 x $0.4/100=$4000 annual premium which is about $333 a month. There are a lot of things that go into getting the numbers to put into the equation though. Things that affect your premium are:

Claims History

The first thing that many insurers look at is how your history of claims compares to that of other businesses in your field that are about the same size. If your business has more or worse claims than others, you’ll have to pay more. However, there is a way to keep your claims at a minimum, or fix the claims history you already have. Accident and injury claims can all be reduced with a good safety program at work and careful risk management, especially when compared to other companies.


Regular safety inspections and a review of safety management to find risks can help you find possible problems so you can fix them before they cause problems. Accident and injury claims can also be cut down by making sure your workers have the proper training on the equipment that they’re working with. If you have a bad claims history and after you implement these safety regulations, you can show your insurer that you have significantly less claims over the course of a year or two. Your insurer will then most likely lower your premium.

Property Construction

Coverage rates can be affected by the materials used to build the business property and by how well it is kept. Buildings made of fireproof materials like brick or stone, or businesses with fireproof walls and doors, will cost less to cover than a building made of wood. This is because a property built with fireproof materials is less risky to cover than one built with wood or other materials that burn more easily. Furthermore, having up-to-date fire sprinklers and alarm systems can also help lower insurance costs. Also, newer buildings and those with recently updated electrical wiring, plumbing, and heating, ventilation, and air conditioning (HVAC) systems often cost less to insure than older properties that need more upkeep. 


Commercial property insurance rates can also be affected by how a building is used. A restaurant or welding business has more risks than a flower shop or a dress store due to the nature of the business, so their insurance rates will be higher. Also, a business’s insurance rates are likely to go up if it shares space with another business that has a lot of possible risks.

Property Location

You know that saying, “location, location, location”? It doesn’t just mean pick a busy area with potential customers, it also means pick a safe area. Your insurance company looks at every possible risk, and we do mean every single one. Any possible risks in the area that your business is located heavily impacts your premium. Risks can include the crime rate, how often natural disasters happen in that area, your proximity to oil plants or businesses that use flammable materials. Location doesn’t just negatively affect your premiums, it can also lower them. Your commercial property insurance can go down if your business is close to places where emergency services are readily available. Such as a fire or police station or even just a fire hydrant. Your business being near emergency personnel means it’s more likely they’ll respond quickly and minimize the damage compared to a business that operates further away.


How much coverage you need is the main factor in your premium. To find out how much coverage you need you have to find out how much both the building and anything in it are worth. You don’t want to get a coverage limit that is less than what it would cost to replace all of your equipment or the building. For example, if all together it would cost $1million to replace everything you’d need, at least that much coverage, if not more because when it comes time to actually replace everything, more than likely it will be more expensive than you originally planned.


You should also factor in inflation. So, you’ll want to give yourself some wiggle room just in case. It’s also very important to look over the assets on your statement of values at least once a year. This makes sure that as your business grows and changes, the limits of your insurance will still meet your needs.

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How To Lower Your Commercial Property Rates

By following a few important tips business owners can save even more money on their commercial property insurance costs. These can make sure that the business isn’t losing money on insurance costs, while still having sufficient coverage. 

  • Review Your Policy

When a business owner wants to find ways to cut their insurance costs, one of the first things they should do is read their policy carefully. Some people will find that they have more insurance than they need, which means they pay for unnecessary coverage. Changes in the business have sometimes made it so that less coverage is needed. For example, a company may have insurance for tools or a vehicle they no longer have.

  • Pay Premium In Full

You can choose to pay your commercial property insurance premium entirely, once a year or in monthly installments when you buy the coverage. However, paying the full year in advance is cheaper than paying every month. 

  • Bundle

Companies can bundle their insurance plans to save money, just like many people do with their home and car insurance. A business owners policy, or BOP, is a package of insurance plans that many insurance companies offer to small and medium-sized businesses. Most company owners’ policies include general liability insurance, commercial property insurance, and business interruption insurance at a cheaper price. Any business that buys these three policies individually should think about bundling them to save money.

  • Raise Your Deductible

A deductible is the amount that the insured has to pay out of their own pocket before the insurance company pays the rest of the claim. Deductibles are chosen when an insurance contract is made. But they only have to be paid when a claim is made. By raising the amount of a deductible, you can lower the amount you have to pay out of pocket.


Policyholders need to look over their policies carefully to see if they can pay a bigger deductible for an accident. When you raise your deductible, your insurance costs go down, but you take on more risk. Fees are often charged each time something happens, not just once a year. Find out what a good deductible for your business is by talking to your insurance agent or provider. Increasing your deductible might not be a good idea if you take on more risk than your business can handle.

  • Minimize Risks

When giving a quote for a commercial property insurance policy, insurance companies look at a number of things. Such as the amount of risk a business faces. There are several safety precautions a business can take in order to minimize their risk to an insurance company.  If a policyholder’s buildings and cars don’t already have a security system, they might want to think about buying one. Businesses can also do things like put sprinklers in your building, work area, or warehouse to lower your risks of fire and possibly lower their insurance rates. Modern fire alarms and smoke monitors should also be put in every business building.

  • Look For Discounts

Even if your insurance company doesn’t advertise discounts, it doesn’t hurt to ask. Policyholders should always talk to their insurance company to find out if they offer deals or if there are other ways that they can save money. Some insurance companies will give you a discount if you stay with them for a long time. While others will give you a discount if you start a safety program.

How EZ Can Help

Every business is different in terms of what risks it faces, how much its property is worth, and how much coverage it needs. Commercial property insurance prices can change a lot from one company to the next. But businesses can still find ways to lower their insurance costs. The first step to lowering your business property insurance costs is to talk to an experienced insurance agent.


EZ can help whether you need group health insurance for your workers or commercial insurance to protect your business. Our agents work with the best insurance companies in the country to make sure you and your workers get the best insurance. In fact, we can find you the best coverage for your budget and save you hundreds of dollars a year. Feel free to call us at 877-670-3538 if you have any questions or enter your zip code to get started on a quote.

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Commercial Property Package: What You Need To Know

Commercial Property Package: What You Need To Know text overlaying image of an insurance agent and a business owner speaking in a warehouseA commercial package policy (CPP) is a type of insurance policy that covers various dangers, such as liability and property risk. A commercial package policy enables a company to receive insurance coverage in a flexible manner. CPPs also offer the advantage of allowing you to pay cheaper rates than if you got a separate policy for each risk. A Business Owners Policy, or BOP, may provide the minimum property and liability coverage required by businesses without specific risks. However, if your company encounters particular risks due to the industry you work in, you should consider finding a Commercial Package Policy.

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How Commercial Property Packages Work

Commercial package policies are often written by insurance companies for small to medium-sized organizations. These companies may have lower liability requirements since they do not operate huge facilities. Or they simply need supplemental insurance coverage for specific hazards. A modest manufacturing company or car wash operation, for example, is unlikely to require the same level of coverage as a real estate developer. Commercial package policies are very customizable and can bundle two or more coverages into a single policy. While each plan is unique, the average CPP will cover a variety of property and liability risks. 

Commercial Property Packages vs Business Owner Policies

We know CPPs sound like BOPs, but they’re vastly different. The fact that BOPs and CPPs are insurance bundles is clearly the most important item they have in common. That is, they are made up of numerous policies. And purchasing them as a package is less expensive than purchasing each of them separately. The primary difference is that the insurance plans that come with a BOP are often predetermined and limited. Insurance companies recognize that general liability, property, and business interruption are policies that the majority of small businesses require, regardless of industry, which is why they opted to package them as a BOP.


Naturally, you can tailor your BOP and add endorsements to make the coverage more flexible. But it will never be as versatile as a CPP. Although a CPP will often contain general liability and property coverage, as these are essential coverages for any business. The options for putting together a more comprehensive insurance plan are far wider when acquiring a CPP. It is important to remember that one is not superior to the other. BOPs and CPPs provide distinct coverage, and both perform wonderfully.

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Building a Commercial Property Package

As we said, CPPs are a bundle policy. While BOPs typically only bundle a few key policies CPPs will bundle as many as you need. A CPP starts the same way a BOP does with core coverages:


  • Commercial property insurance – Covers damage to property, including not only buildings but also merchandise, equipment, signage, and other items.
  • General liability insurance – Covers expenses if a customer gets hurt on your property or while using your product or service.
  • Business interruption insurance – Covers lost revenue, unpaid salaries, and rent. Along with a variety of other costs if your business is destroyed and must close for a period of time to renovate or relocate.

After the basic core coverage is picked is where CPPs stand out from BOPs. Other coverages that are often packaged under a CPP in order to provide more broad and expansive coverage for companies with more demanding coverage needs include:


  • Commercial auto insurance – Covers damage to vehicles owned by your company or private automobiles used for business.
  • Commercial crime insurance – Financial losses caused by employee dishonesty, burglary, fraud, forgery, and other corporate crimes are covered.
  • Umbrella insurance – When necessary, broadens liability coverage to bridge gaps in your coverage. And offers coverage for liabilities that may not have been specifically covered by another authorized policy.
  • Equipment breakdown – Covers losses caused by equipment failure, such as heating, electrical air conditioning, refrigeration, and other equipment problems.
  • Pollution liability – Covers pollution-related expenses like personal harm and necessary clean-up measures.
  • Electronic data processing coverage – Covers the costs of electronic data processing media or equipment loss or damage.
  • Employment practices liability – Covers costs associated with employee disputes involving termination, discrimination, sexual harassment, and other workplace issues.

A CPP can also contain insurance for professional liability, supply chain risk, terrorism, farming or ranching losses, and other risks.

What Isn’t Covered?

Regardless of how adaptable CPPs are and how many types of coverage can be bundled into the package. There are some insurance policies that simply cannot be included in a CPP. If you need any of these policies, you’ll have to purchase a separate policy:


  • Directors & Officers insurance – Provides liability coverage for corporate management. Shielding directors and officers and their personal assets against claims arising from choices, errors, and “wrongful acts” made while working on behalf of the company.
  • Key person insurance – A life insurance policy purchased by a corporation on a key executive or employee who is extremely important to the firm’s success.
  • Workers’ compensation – Covers employee injuries-related damages. Including lost earnings, medical bills, rehabilitation, and, in the worst-case scenario, death benefits and burial expenditures.

Who Needs A Commercial Property Package?

A CPP is more comprehensive since it allows you to combine two or more liability policies. Giving you more coverage alternatives than a BOP. With a CPP, you can boost your coverage limits in places where you are more likely to face a claim. While decreasing your policy limits in locations where you are less likely to face a claim.


A commercial package coverage is frequently matched up with mid-sized companies and those with higher risks. A CPP is especially beneficial for small and medium-sized companies that want a customized approach to risk management. Since it gives coverage alternatives that go beyond a BOP and underwriting that is tailored to their individual needs.

The Cost of A Commercial Property Package

One of the key features of a CPP is that businesses can tailor their coverage by adding a variety of riders to the package. Naturally, the more types of coverage you include in your CPP, the higher the cost. Aside from how many supplementary coverages you add to your CPP and how complex your coverage is, insurers will consider various aspects to determine how much you will have to pay for your CPP, including:


If you work in a high-risk industry, your CPP will be higher. Construction companies, for example, will pay substantially higher premiums than accountants since their liability and property risks are much higher.


Businesses in large cities typically pay more for a CPP than those in rural areas, because the more populated your location is, the more vulnerable your property is to crime and vandalism.. Additionally, if you live in a region of the country with a history of natural disasters such as hurricanes and earthquakes, your CPP will cost significantly more than if you were located in a low-risk region of the country.

Number of Employees

Whether you should get a BOP or CPP is largely determined by the size of your company. The more employees you have, the more likely it is that a BOP will not provide adequate protection. Also, if you’re a company with more than 100 employees that no longer qualifies for a BOP, you may need a CPP if you want to bundle your policies. It’s important to note that the amount of employees you have will raise your CPP premiums.

Property Value

The higher your CPP premium, the higher the value of your property and the more difficult and expensive it is to replace your physical property, equipment, and inventory.

Claims History

If your company has a history of claims, particularly serious claims that resulted in big settlements from your insurer, you will pay much more for your CPP than a company that has had very few claims in recent years.

Why You Need It

Having the right commercial package policy gives your company peace of mind, knowing that if your property is significantly damaged or a third-party injures themselves on your property and sues you for damages, you will have the financial support you need to get through the ordeal. Running a business in today’s highly unpredictable and litigious environment can be a very stressful activity if you are unprotected and running your business with the knowledge that one unforeseen accident and costly lawsuit might put you out of business for forever.


Even if your business is fortunate enough to avoid a natural disaster that damages your property or a lawsuit from a customer who was injured on your property, having the right liability and property coverage allows you to confidently run your business and take calculated risks knowing that your business is protected from things beyond your control.

Help From EZ

EZ can assist you whether you are searching for commercial insurance to protect your business or group health insurance for your employees. Our agents work with the top insurance providers in the country to locate the best insurance for your company and its employees. In fact, by working with your budget to get you the greatest coverage, we can save you hundreds of dollars per year. If you have any questions, please contact us at 877-670-3531 for group health insurance assistance and 877-670-3538 for commercial insurance. Or put your zip code into the bar below to get your instant free quotes.

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What Is Hazard Insurance?

What is hazard insurance text overlaying image of orange caution tape Keeping your business’s doors open depends on a number of factors. But it’s clear that maintaining your business’s property and equipment is a huge part of that. If these assets are damaged in a fire or natural disaster, it might be difficult for your business to recover. So, you need to protect them. The best way to protect your business and be able to recover some of the costs associated with repairing or replacing your property, is to carry enough hazard insurance. Otherwise known as commercial property insurance.

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What Does Hazard Insurance Cover?

Hazard insurance covers both the building that your business owns or rents, as well as the equipment that it uses. Depending on your policy, hazard insurance will generally cover the cost to repair or replace the following items:


  • Personal property
  • Tools and equipment
  • Inventory
  • Furniture
  • Computers
  • Accounts receivable
  • Documents
  • Outdoor landscaping


It will cover damages to the above due to:


  • Fire and smoke damage
  • Theft and vandalism
  • Some weather-related events such as hail, lightning, snow, sleet, or ice
  • Explosions
  • Aircraft or vehicles
  • Sprinkler leakage
  • Building collapse
  • Water (in certain specific cases)
  • Civil unrest or rioting


Damages caused by floods, earthquakes, acts of terrorism, nuclear attacks, or damage resulting from war are typically not covered by hazard insurance policies. You will need a separate insurance policy to protect your business from these occurrences.

Does My Business Need Hazard Insurance?

Even though business owners in many states are not required to have hazard insurance. It is still a good idea to get it because it can assist in covering the costs of damages that you would otherwise have to pay for out of your own pocket. 


And while you might not be required by your state to have hazard insurance, in many cases if you want to borrow money for your business from a financial institution, you will most likely be required to have a particular type of hazard insurance policy. For instance, loans from the Small Business Administration (SBA) may require evidence of business hazard coverage.


If you’re looking to take out a loan for your business, you can read more about this topic here.

Do I Need Hazard Insurance if I Have a Home Business?

If you run your business out of your home, your homeowner’s insurance policy might not be sufficient to cover the business-related property that you keep in your home. This means you’ll probably want to have a separate policy. 

The Cost

The price of hazard insurance will vary widely depending on a number of factors, including:


  • The age of your building/property – If the workspace that you own or rent is older, you’ll typically pay higher premiums because repairs to older properties tend to be more expensive.
  • The value of your building/property – The higher the total value of your assets, the higher the premium for this coverage will be.
  • Whether you choose a cash value or replacement cost policy – With a policy that pays out based on the actual cash value of your property, your payout will be determined by how much your property was originally purchased for before it was damaged. But if you have a policy that pays out based on replacement value, you will be covered for how much it would cost to buy a brand new version of the item that was damaged. Because of the effects of depreciation, cash value insurance is typically more affordable than replacement value insurance.
  • Coverage limits – As is the case with the vast majority of insurance policies, your monthly premiums will go up as you add more coverage.
  • Lender requirements – A lender may require that you have a certain amount of property insurance coverage before they will approve your application for a loan. The more insurance your lender requires, the larger your premium will be.

Hazard Insurance for a SBA Loan

The Small Business Administration (SBA) helps small businesses get the credit they need by putting the government’s name on loans made by commercial lenders. The lender provides the loan, and if the borrower doesn’t pay back the loan, the SBA will cover up to 85% of the loss. 


To get a small business loan from the SBA, you need to show that you have hazard insurance. Having this type of policy shows that you own real assets that can be taken if you can’t pay back the loan. For example, if a construction company wants to borrow money to buy a piece of equipment but can’t pay back the loan, the lender can take ownership of the equipment.

Types of Hazard Insurance SBA Might Require

In order to be eligible for a loan from the SBA, you will have to show that your business has adequate insurance coverage. This could mean having general liability coverage as well as commercial property insurance/hazard insurance. Keep in mind that depending on the kind of loan you want to get, the Small Business Administration might require you to have other types of insurance coverage, such as workers’ compensation.


Specifically, the Small Business Administration requires the following when it comes to hazard insurance:


  • The minimum required coverage amount is 80% of loan principal.
  • Your business’s name must appear on the insurance policy.
  • Your DBA name must be included in the policy if you use one.
  • You must show proof of the required insurance within 12 months of receiving your loan. If your business does not already have it when you apply for your loan.

Is Hazard Insurance Tax Deductible?

The Internal Revenue Service considers business insurance premiums to be an ordinary and necessary business expense. So, yes it can be tax deductible. But there are other factors to think about when determining if your hazard insurance is tax deductible.


If you have a home-based business, you may be able to deduct some of your operating costs from your taxable income. Insurance premiums can fall into this category, along with utilities and home office essentials. For instance, you can deduct half of your annual hazard insurance premiums if your home is used for business purposes in excess of 50% of the time.


If your company suffers losses in an area where a federal disaster declaration has been issued, you may be eligible for deductions. If you have hazard insurance and your insurer only pays a portion of your claim, for instance. You can deduct the amount of your claim up to $500 per incident.


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Other Types of Business Insurance You Need

What, where, and how you do business will determine the specific types of coverage your company needs. The following are some examples of common types of business insurance policies, other than commercial property/hazard insurance:


Workers’ Compensation

Workers’ compensation, which is also referred to as “workers’ comp,” is a type of insurance policy that is mandated by law. It provides benefits to employees in the event that they sustain an injury while performing their job. Employees can receive financial compensation, medical benefits, or both from the fund. Which fills the role of an insurance policy for disabled workers. Different states have different regulations regarding workers’ compensation, so check out our state-by-state guides.

General Liability Insurance

Standard liability claims made by third parties (people who are not affiliated with your company) are covered by general liability insurance. This type of commercial insurance policy will pay for your company’s legal defense expenses in the event that your company is sued for causing bodily injury, damage to property, or injury to reputation. This includes everything from hiring an attorney to paying for court-ordered judgements and settlements. As well as any other costs that may arise.

Business Owner’s Policy

General liability and commercial property insurance are the two main components that make up a business owner’s policy, or BOP. Which is essentially a bundle of the two (or more) types of commercial insurance. With a BOP, you will be protected from financial loss and covered for any claims that would be covered by either of those two types of policies. One simple policy can protect your small business from a variety of significant legal risks. 

Commercial Property Insurance

As covered above, this type of policy typically includes coverages for the most common hazards. It safeguards both the structure and the contents of your business’s property.

Commercial Auto Insurance

If your business uses vehicles, you’ll need commercial auto insurance to cover things like liability, accidents, medical bills, personal injury protection, and uninsured motorists. It’s similar to a personal auto insurance policy. But commercial auto insurance has different eligibility requirements, coverage, exclusions, and limits than personal auto insurance.

Working With EZ

Our insurance agents work with the leading insurance companies across the country to ensure that you have access to the best coverage options for your business and its employees. In fact, we can save you hundreds of dollars annually by tailoring our search to find you exactly what you need, at the best price possible. If you have any questions, please do not hesitate to contact us at 877-670-3538.

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Additional Insured VS Loss Payee

Insurance terminology can be confusing, you’re a business owner, not an insurance expert. It can be difficult to differentiate between terms, but it is crucial to understand the differences in order to ensure that you are getting the right coverage, and that you are in compliance with your plan’s conditions. For example, there are two terms, “additional insured” and “loss payee,” that both describe a third party who requires special protection as part of your commercial insurance policy. The two terms may be similar in some ways, but are very different in terms of the protection offered to all parties involved.

Additional Insured

caucasian hand holding a pen and paper pointing to another set of hands
You should request to be added to a business’ liability policy if you are being contracted to perform a job. It will protect you in case something goes wrong.

Simply put, an additional insured is anyone added to an insurance policy who is not the primary policy holder. If your business contracts any outside workers or businesses that could be held liable for jobs that they perform while working with you, those third parties will often request to be added to your commercial liability policy. Adding them to your policy will mean that they will be covered for work done with your business or on your premises. You should also request to be added to a business’ liability policy if you are the one being contracted to perform a job. 

For example, let’s say you hire a janitorial company to clean your workplace, and a customer or other person who doesn’t work for your business gets hurt on your premises because of something the janitorial company has done. If you have listed the janitorial company as an additional insured on your general liability insurance policy or business owners policy, BOP, then the janitorial company will be protected under your policy in case they are sued for negligence. The additional insured has liability protection, but they don’t have a legal first right to claim payments from the named insured’s insurance policy. 

Loss Payee

A loss payee is a third party listed on a commercial property insurance policy’s declarations page who is entitled to all or a portion of the insurance claim payments in the event of a loss. When there is a loss payee, who is usually a finance company, bank, or other lender, listed on a policy, the insurance company will pay claims directly to the loss payee first before it makes payments to anyone else, including the policy owner. The named insured, or policy holder, comes second  because loss payees have an insurable interest in the property.paper that says loan agreement with a pen on it

For example, if your business takes out a loan to purchase a building, the mortgage company who is financing the building might require you to list them as a loss payee on your commercial insurance policy’s declarations page. So, if there is any damage to the property, such as a fire, or an accident, then the mortgage company’s interests will be protected. Whenever you file a damage claim, your insurance company will have to notify the loss payee (your mortgage company). The insurer will then issue a check to pay for repairs, made out to both the named insured (you) and the loss payee (the mortgage company).

The Difference

silver scale with a question mark on each side
Additional insured and loss payee are similar, but the difference determines what protection you get.

Additional insured and loss payees are both entitled to receive insurance benefits from the named insured’s (policy owner) policy. The main difference is that additional insured will receive liability protection, whereas loss payees will only receive property damage coverage. Additional insured generally cannot receive any payments for any property claims, unless they have a direct involvement in the claim. For example, if the janitorial service from above did not service an area of your business where a customer was injured, then they would have no ability to file a claim. 

Whenever you work with another business that increases your business’s legal liability, you should consider requesting to be added as an additional insured on their policy. On the other hand, if you have a direct interest in investing in another business and are considering becoming their lender, then you should request to be added as a loss payee on their insurance policy. That way your interests are protected, and you will get first rights to claim proceeds from their insurance company in case of any damage. 

You can’t add an additional insured or a loss payee to all types of small business insurance; these endorsements are only available on some small business insurance policies. To find out if you can add either to your insurance policy, and which one might be right for you, you should speak to an insurance agent. EZ.Insure offers highly-trained agents who will review your business insurance policies, make sure you are properly insured, and help you determine if a third-party request to be named as a loss payee or additional insured is reasonable. Make sure you’ve got the right coverage for your business at the right price by connecting with one of our agents. To get started, simply enter your zip code in the bar above, or to speak to an agent directly call 888-615-4893.

Coinsurance Clause? Agreed Value? Make Sure You Have Enough Commercial Property Insurance!

Having enough commercial property insurance coverage is crucial to protecting your business. Whether you’re choosing to insure the actual cash value (ACV) or the replacement value of your real property (your building) and business personal property (everything in it), you need to purchase a policy that will cover as much as possible in case disaster strikes. One major storm, one act of vandalism, or one kitchen fire can mean thousands of dollars in repairs, and could even mean closing your doors forever.

There is another reason, though, that you need to purchase the right amount of coverage: your insurance company might actually require you to have a certain amount. Check your policy for what is known as a coinsurance clause, and make sure that you’re meeting your insurance company’s requirements, otherwise you could end up paying for damages to your business out-of-pocket.

What Is Coinsurance?

caucasian hands pointing at a piece of paper that says "insurance policy" on it
Make sure to read your commercial insurance policy to see if you are required to pay a coinsurance clause.

Your commercial property insurance can feel like another expense in a very long list of expenses that pile up every month. It might be tempting to cut your premium by skimping on coverage – after all, what are the odds that you’ll be forced to make a claim? Well, commercial property insurance claims are more common than you might think, and more costly than you might think, as well. That means that, if you’re covered by a commercial property insurance policy, your insurance company will have to lay out a lot of cash in the event that you do make a claim. It also means that your insurance company needs you (and every other business with a policy) to pay enough in premiums to keep them afloat. 

One way that insurance companies make sure that you’re paying enough in premiums is by adding a coinsurance clause to your policy. You may be familiar with this term as it relates to health insurance, but it works a little bit differently in a commercial property insurance policy. If you have a coinsurance requirement in your health insurance plan, it means that your insurance company pays a certain percentage of the bill, and you pay the rest. If you have a coinsurance clause in your commercial property policy, it means that you need to purchase a policy with a certain policy limit, or maximum amount that your insurance company will pay for a claim. 

For example, your insurance company might write an 80% coinsurance clause into your policy. This would mean that you would need to purchase enough insurance to cover 80% of the value of your property. So, if you were insuring a building that would cost $1 million to replace, you would have to purchase at least $800,000 in coverage. 

How Coinsurance Works

Coinsurance clauses encourage business owners to purchase enough insurance to make sure that any possible claims are fully covered, and to make sure that insurance companies collect enough premium dollars to keep rates fair for everybody. Not every policy will have a coinsurance clause – check your policy conditions to see if yours has one. If you do have a coinsurance clause, it won’t have any effect on your policy unless you experience a loss that requires you to make a claim. If you make a claim, and you haven’t fulfilled your coinsurance requirements, then you could face a penalty.

If you need to make a claim for damages, your insurance company will compare the insurance limit on your policy to the amount of insurance you were required to purchase based on your coinsurance clause. If you purchased less than you were required to, your insurance company might reduce your claim payment in proportion to the difference. For example, if you purchased 10% less than required, your insurance company might pay 10% less than they would if you had purchased adequate coverage.

2 pie charts with the 80-20 rule. an arrow is pointing the 20% towards the other pie chart labeled 80%

For example, let’s say that you have an office that is valued at $100,000, and you have a 80% coinsurance clause in your property insurance. You would have to insure your office for at least $80,000. But let’s also say that you’ve only insured it for $40,000, 50% less than you were required to. There is a fire in your office that causes $20,000 in damages – but because you insured your property for 50% less than you were supposed to, your insurance company will now only pay 50% of the claim, or $10,000. You can see why it’s important to pay attention to your coinsurance requirements!

One other very important thing to note: your insurance company will decide whether you have met your coinsurance requirements based on what your property is worth at the time that the damage occurs. So, if your property has increased in value, and you haven’t purchased more coverage, then you could be hit with a penalty.

Avoiding a Coinsurance Clause

illustration of black hands shaking with a black and white suit on the arms
if you want to avoid the coinsurance clause, then you will have to buy agreed value coverage.

One way to avoid a coinsurance clause is to purchase agreed value coverage. An agreed value clause is added to a policy when you and your insurance company agree on the insurable value of your property. In order to reach this agreement, you need to submit a statement of values to your insurer before your policy begins. This statement of values will list everything you are insuring and its value.

Once you have provided a statement of values to your insurer, they will waive your coinsurance penalty for one year (the term of your policy). If you end up making a claim for damages, your property will be assessed based on the agreed-upon value as long as you have insured your property for that amount.

Getting the right commercial property insurance policy is one of the most important things you need to do for your business. Being underinsured can spell big trouble, because you could be hit with a coinsurance penalty by your insurance companies. Always make sure that your policy is keeping up with your growing business, and always make sure to go through your insurance conditions with a fine tooth comb. If you need help with either of those things, talk to EZ. Our knowledgeable agents can answer all of your commercial insurance-related questions, find you great policies, and keep them all up-to-date – and we’ll do it all for free! 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.

Thinking of Canceling Your Commercial Insurance? Read This First

Crisis can hit any small business at any time. Unforeseen circumstances, such as the recent pandemic, can force businesses to temporarily close their doors, leaving their owners wondering how to stay afloat. In cases like this, it is only natural to want to find ways to save money. One of the first things you might consider doing to save some pennies is to cancel your insurance policies. But before you do that, you need to know how that will end up costing you more in the long run. Here are 5 reasons why you should think twice before canceling your commercial insurance.

1. You Probably Won’t Get a Full Refund on Your Premium

caucasian hand pulling out the inside of his jean pocket.
There is no penalty for canceling, but you will not get a full refund on your paid premiums.

Let’s say you’ve only had your commercial insurance for a few months out of the year when a crisis hits and you need to temporarily close your business. You might think that canceling your insurance will mean getting a refund on the remainder of the premium that you’ve paid for the year. But that is generally not the case: there is usually a penalty for early cancellation of your policy.

It should come as no surprise that insurance companies have ways of protecting themselves against customers buying insurance, using it once, and then dropping it. One way they do this is with a minimum earned premium, which is the minimum amount an insurance company is willing to take for writing a policy. For example, if you have a policy with a $500 yearly premium and you cancel 6 months into the policy, you would get $250 back if there were no minimum earned premium. However, if there is a minimum earned premium of $300 on your policy, the most you could be refunded is $200. Some policies do not have minimum earned premiums, while some have 100% minimum earned premiums, so check your coverage. And don’t forget that most of the taxes and fees you’ve paid on your policy are never refundable. 

2. You’ll Pay More to Restart Coverage

If you’re viewing your closure as temporary, remember that, when you reopen, you’ll need to purchase insurance again. This might not seem like a big deal; after all, you’ve already gone through the process once. But there is a problem with canceling and repurchasing commercial insurance: insurance companies view businesses that have had a gap in coverage as more of a risk to insure. This translates to an automatically higher premium for you when you decide to buy insurance again.

red sign with "sorry we're closed" in white
If you lose your permit or license, then you will have to shut down your business.

3. You Might Lose Your Permits or Licenses

Does your business require special licenses or permits? At the very least, you probably needed to obtain a business license when you opened your business. Getting those permits and/or licenses was probably time-consuming at best, and a downright pain at worst – and remember that you probably needed proof of general liability or workers’ comp insurance to get those permits or licenses. If you cancel your business’ insurance policies, you risk losing the permits and licenses you worked so hard to get, and you might need to go through the process all over again. In some cases, you might even struggle to get them back: for example, if you own a restaurant with a liquor license, you might end up losing it to another business, since there are only a limited number of them given out in each city. 

4. Your Property Will Be at Risk

An empty business, such as a storefront, will always be at risk of theft and vandalism, even if you’ve boarded it up and protected it as best you can. Your commercial property insurance is what protects you from having to pay for damaged or stolen property; without it, you’ll be left with all the bills. the word risk spelled out on scrabble dice

5. You Could Find Yourself in Default

If you’re like most small business owners, you rely on one or more types of financing: a mortgage on a property, or a lease on equipment. Before you cancel your insurance policies, be sure to check the fine print of your mortgage or lease – you might find that not having insurance will mean defaulting on your loans, even if you’re up-to-date on your payments. You could lose your workspace, or have your valuable equipment repossessed, simply because you don’t have the required insurance policies.

Falling on hard times or facing a crisis is never easy. But add to the mix the business you’ve worked so hard for, and you may end up having to make some difficult choices. One thing to remember, though, is that your commercial insurance policies are there to protect your business, and any money you may save by dropping them can end up being canceled out in  the long run. If you need help, or have any questions regarding any type of commercial insurance, EZ.Insure is here with the answers. Speak with your own personal agent, any time, for free. 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.