Texas Commercial Insurance
Commercial property insurance helps businesses, including farms and ranches, pay to repair or replace buildings, associated structures, and contents damaged by fire, storms, theft, and other events outlined in the policy.
This publication provides general information about the kinds of commercial property coverage that are available in Texas. It can help you evaluate different commercial property policies, understand how rates are determined, and ask the right questions when shopping for insurance. You should review your policy carefully to understand your specific coverage.
Texas Commercial Property Insurance
Business owners who either own or lease their buildings may purchase commercial property insurance. It’s important for a tenant business to understand that the building owner’s insurance policy will generally only cover the building or structure, not the contents of the building belonging to the tenant. Tenants should purchase their own policies to insure their on-premises property, such as machinery, furniture, and merchandise. An insurance company will evaluate factors such as a structure’s location and construction materials to determine the likelihood of a property loss. The cost of tenant coverage will generally be significantly less than for owned property coverage because the policy will only apply to the leaseholder’s on-premises property and not the building.
Typically, businesses operating on multiple premises are covered by a single policy. In certain instances, such as when two business locations serve different functions and have different risk profiles, separate policies may be needed. This may be the case when a business insures both an office location and a factory, for example.
A commercial property policy may pay based on either the “actual cash value” or “replacement value” of a loss. An actual cash value policy will pay only the amount of the property’s worth at the time of the loss. Worth is determined by the value of the property minus depreciation due to age and normal wear and tear. A replacement value policy will pay to purchase new property of like kind and quality after a loss. In general, a replacement value policy better ensures that a business can fully recover after a significant loss. Replacement value policies are typically more expensive than actual cash value coverage because the policy limits should reflect the cost to replace damaged property with new property.
Almost all policies have a “deductible,” which is an amount the business must pay out of pocket toward the cost of a claim before the insurance company will pay. Generally, the higher a policy’s deductible, the lower its premium will be because the policyholder is accepting a greater share of the cost of any eventual claims. Most policies will also include a “policy limit,” which is a maximum amount the insurer will pay toward any covered loss.
Insurers use a process called “underwriting” to evaluate the likelihood that a given policyholder will file a claim for a loss. The greater the likelihood, the higher the premium will be. If an insurer determines that a business poses too great a risk of a loss, it may decline to issue a policy entirely. If your business is declined for coverage, keep shopping; companies have their own criteria for determining whether to issue coverage and the rate to charge. If one company turns you down or is too expensive, another may be willing to issue coverage or offer a lower premium. There may also be certain steps your business can take to lower its risk and either qualify for coverage or get a lower rate.
Different types of commercial property policies protect against different risks, or “perils.” It’s important to understand which types of losses a policy does and does not cover. A commercial property policy will almost never cover any loss that is either not specifically included in the policy language or is specifically excluded. Therefore, be sure you read a policy carefully before you purchase it. You may need to buy certain specialized policies, such as flood, windstorm, or crime coverage to be protected from those particular losses.
Commercial property insurance is not standardized in Texas. Insurance companies must comply with minimum requirements but have a great deal of flexibility to develop their own policies. As a result, the coverage provided by one insurer’s policy may differ substantially from that of another. When shopping for commercial property insurance, be sure to evaluate the costs and coverages of the policies you’re considering.
Texas Commercial Insurance Policy Coverages
Commercial property policies in Texas generally fall into one of three categories:
Many business owners buy additional coverages. Some are available as separate policies, and others are available as endorsements, or “riders,” that enhance or amend a policy’s base coverage. Generally, adding endorsements to a policy will increase your premium. Ask your agent about these additional coverages:
Coverage against crimes
There are several types of policies that can protect a business from losses resulting from crime. Policies may be issued on a “loss sustained” or “discovery” basis. Loss sustained coverage pays for losses that occur during the policy period, while discovery coverage pays for losses that occur at any time. Both types require that losses be discovered during the policy period or extended reporting period. Common crime coverages include:
Commercial multi-peril policies
Commercial multi-peril (CMP) policies combine one or more coverage forms, such as commercial property, general liability, inland marine, crime, or commercial auto, in a single policy. A business owner could add other types of coverage to ensure full protection within the convenience of a single policy.
Business owner programs (BOPS) are a common form of commercial multi-peril policy. BOP policies are tailored to the needs of small-business owners and combine property and liability coverage in one policy.
Texas Flood Insurance
Some companies may include flood coverage in their commercial property policies for areas with a low flood risk. However, most flood insurance in the United States is administered by the National Flood Insurance Program (NFIP).
(For more info please visit the Texas Department of Insurance)