Protecting Your Property Interests – Different Coverage Types

While “Property Coverage” seems straight forward enough to mean a policyholder’s property is protected, there are different categories of property. These categories are named under different coverage types with different limits. Knowing the differences, as well as understanding what limits are needed, can help business owners assess their business’s risk exposures and insurance needs.

“Property” is referring to physical structures or buildings, on land. This is the most basic coverage that building owners seek. The limit of this coverage is determined by the value of the building, but also if the coverage is on a replacement cost or actual cash value basis. Replacement cost limits will be higher because this coverage seeks to replace the property, whereas actual cash value takes into account depreciation and subtracts this from the value of the building.

“Business Personal Property” refers to movable property owned by and used in the operation of a business. Building owners who store materials at their buildings and commercial tenants alike, have an interest in Business Personal Property Coverage on their property policies. Read our blog focused on BPP to determine what equipment or materials to include in this limit on your policy.

“Tenants Improvements and Betterments” can be defined as construction or physical, unmovable improvements to an existing, rented property by a tenant. Typically a policyholder will want this coverage amount to be equivalent to the amount he or she spent on improving their rented space to become operable.

This particular coverage is tricky because its necessity is dependent upon the lease a business owner has with their landlord. Having a lease that clearly spells out responsibility for improvements and betterments is more beneficial to a business owner than a lease that is silent on the issue. If a business owner plans on making substantial improvements to a property, understanding a landlord’s position on improvements and betterments will help a business owner to protect himself accordingly.

Inland Marine, a property coverage, however completely separate from the coverages discussed above, protects a business owner’s materials when they are in transport, perhaps from job to job. There are two ways to cover this particular risk. An insured can add a floater endorsement onto their original property policy, or a policy holder can purchase a completely separate inland marine policy. There are multiple variables to consider when deciding on what route to take, including the willingness of the property carrier to write a floater, limits need vs. offered, etc.