The House Insurance Built
Risk Management for Builders & Contractors

Chapter 2: Understanding Construction & Contracting Insurance Policies
Part 2.2: Business Insurance Basics: Property Insurance

Property Insurance is a must for contractors who own or lease expensive equipment (e.g., cement mixers, dozers, loaders, etc.). After all, if something happens to your heavy machinery, your projects could be delayed until you have the means to make replacements or repairs.

With adequate coverage, though, your provider can compensate you for the cost of replacing your covered gear. Additionally, your Property policy can protect your commercial real-estate and its contents from loss due to common disasters, such as…

  • Fires.
  • Thefts and vandalism.
  • Windstorms.
  • Power outages or surges.

While standard Property Insurance policies don't cover damage caused by hurricanes, floods, and earthquakes, most can be tailored to include these coverages through the appropriate endorsement. It's something to consider if you live in a region prone to these events, especially when you take into account that 40 percent of small businesses never recover after a natural disaster hits.

So how does Property Insurance work? Let's break it down.

Commercial Real Estate

If you own commercial property, you have plenty of incentive to insure your investment. Even a small windstorm can cause considerable damage, and repair work adds up quickly. (And as a contractor, you probably know all too well that price of construction and building materials rises each year. ENR.com's "Construction Economics" report can give you an idea about these costs if you're not familiar.) Your Property policy can cover the damage to your building and its contents when a covered claim occurs.

Rented Office or Building Space

Your landlord may have your building covered with their Property Insurance plan, but you'll want to scope out your lease to be sure. Even if your landlord doesn't require you to purchase Property Insurance, you'll likely still want coverage for the business property housed inside your rented space.

This is called "contents coverage." You can purchase a Property Insurance policy that includes just premises coverage, just contents coverage, or both.

Leased or Owned Equipment

Your tools are central to your work, which means there's not much wiggle room time-wise if they are stolen, damaged, or otherwise out of commission. You need replacements quickly. Luckily, a quality Property plan can compensate you for the cost of repairing or replacing your covered gear.

If you own your equipment, you may have the option to insure your equipment at its actual-cash value or its replacement value. Let's look at the differences:

  • Actual-cash-value coverage typically costs less, but only pays out what your depreciated items are worth at the time of the claim.
  • Replacement-value coverage comes with a slightly higher premium, but this kind of insurance pays out the current market cost if you were to buy your gear brand new. If you lease equipment, most providers only offer replacement-value insurance.

While you plan for your coverage needs, be sure to give yourself plenty of wiggle room when determining your policy limits. Recovering after a serious disaster is a costly ordeal, and you don't want to be left underinsured in a time of crisis.

Next: Health Insurance

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