Commercial property guide

Commercial property coverage, explained

What each coverage is, when you need it, and what lenders tend to say about it. Coverage depends on the property, the insurer, and the market, so we'll tell you what's available for yours.

Building property

Covers the building itself: the structure, fixtures, and permanently installed equipment. It's the core of a property program.

When you need it: Any building you own.
What lenders say: Almost always required, usually at replacement cost, with the lender named as mortgagee.

Business personal property

Covers the owner's movable property at the location, such as leasing office furniture, common-area furnishings, appliances, and maintenance equipment. Tenants insure their own belongings.

When you need it: You own contents at the property.
What lenders say: Sometimes required when the owner's contents are significant.

Loss of rents and business income

Replaces rental income lost while a covered loss keeps units or space from being rented. It can also cover extra expenses to get back in operation.

When you need it: Any income property.
What lenders say: Commonly required, for a period set in the loan documents.

General liability

Covers claims that someone was hurt, or their property was damaged, at your property. It also pays for your legal defense.

When you need it: Every property.
What lenders say: Required, usually with the lender added as an additional insured.

Umbrella and excess liability

Adds liability limits above your general liability policy. Larger properties and properties with more exposure usually carry higher limits.

When you need it: Larger properties, or when a contract or lender calls for higher limits.
What lenders say: Many set a minimum total liability limit that grows with the size of the property.

Builder's risk

Property coverage for a building under construction or major renovation, including work in progress and materials. It can extend to some soft costs.

When you need it: Ground-up construction and heavy renovation.
What lenders say: Construction lenders usually require it before the first draw.

Earthquake (DIC)

Standard property policies exclude earthquake. Coverage is written separately, often as a difference in conditions (DIC) policy.

When you need it: When the owner wants it, or the lender requires it.
What lenders say: In California, often tied to a seismic study. The lender orders an engineering estimate of probable maximum loss and decides from there.

Flood

Standard property policies exclude flood. Coverage is written separately, through the National Flood Insurance Program or private insurers.

When you need it: Buildings in or near mapped flood zones. Buildings outside them can flood too.
What lenders say: Typically required when a building sits in a mapped special flood hazard area.

Equipment breakdown

Covers sudden mechanical or electrical breakdown of building systems such as boilers, chillers, elevators, and electrical panels, which property policies generally leave out.

When you need it: Buildings with central systems or elevators.
What lenders say: Often required where a building has central heating, cooling, or pressure equipment.

Ordinance or law

Covers the extra cost to rebuild to current building codes after a loss, including tearing down undamaged parts when the code requires it.

When you need it: Older buildings that don't meet current code.
What lenders say: Often required for buildings that predate current zoning or building codes.

Terrorism

Covers damage from certified acts of terrorism. Insurers offer it under a federal program, and it can be accepted or declined on most policies.

When you need it: When the lender requires it, or for larger properties in dense areas.
What lenders say: Many lenders require it.

Environmental (pollution legal liability)

Covers cleanup costs and third-party claims from pollution conditions at the property, which general liability and property policies generally exclude.

When you need it: Properties with past industrial uses, fuel tanks, or dry cleaning tenants.
What lenders say: Sometimes required, depending on what the environmental report finds.

Terms worth knowing

Replacement cost vs actual cash value: Replacement cost pays to rebuild or replace without deducting for depreciation. Actual cash value is replacement cost minus depreciation. Lenders usually want replacement cost on the building.
Coinsurance and agreed value: A coinsurance clause reduces a claim payment if the building was insured for less than a set share of its value. An agreed value endorsement removes that penalty, which is why keeping your statement of values current matters.
Blanket vs scheduled limits: A blanket limit is one limit shared across several buildings or locations. Scheduled limits give each building its own limit. A blanket limit gives more room if one building's value was set too low.
Admitted vs surplus lines insurers: Admitted insurers are licensed by California, and the California Insurance Guarantee Association backs covered claims if one fails, within limits set by law. Surplus lines insurers can cover properties admitted insurers won't. They are not licensed by California, and their policies are not protected by the guarantee association. You'll receive a required state disclosure before you buy.

What lenders require

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