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Commercial Property Coverage Outline |
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Property Insurance is any type of insurance
that indemnifies an insured party who suffers
a financial loss because property has been
damaged or destroyed. Property is considered
to be any item that has a value. Property
can be classified as real property or personal
property. Real property is land and the attachments
to the land, such as buildings. Personal Property
is all property that is not real property.
The Building and Personal Property coverage
form is the form used to insure almost all
types of commercial property. The insuring
agreement in the Building and Personal Property
coverage form promises to pay for direct physical
loss or damage to covered property at the
premises described in the policy when caused
by or resulting from a covered cause of loss.
The following is a brief outline of coverages
and how they are used within the Commercial
Building And Personal Property coverage form.
Buildings and Business Personal Property
Coverage for the building includes the building
and structures, completed additions to covered
buildings, outdoor fixtures, permanently installed
fixtures, machinery and equipment. The building
material used to maintain and service the
insured's premises is also insured. Business
Personal Property owned by the insured and
used in the insured's business is covered
for direct loss or damage. The coverage includes
furniture and fixtures, stock, and several
other similar business property items when
not specifically excluded from coverage. The
policy is also designed to protect the insured
against loss or damage to the personal property
of others while in the insured's care, custody
or control.
Coverage Extensions and Additional Coverages
In addition to the limits stated in the Building
and Personal Property coverage form, the policy
has a coverage extensions section and an additional
coverages section. The coverage extensions
section provides limited coverage for newly
acquired or constructed property, property
of others, certain outdoor property, and the
cost to research and reconstruct information
on destroyed records. When coverage is placed
on the all risk form, two additional extensions
are added for property in transit and coverage
for certain repair costs related to damage
caused by water. The two additional extensions
are covered by certain perils only. The additional
coverage section provides coverage for indirect
losses that result from a direct loss. The
coverage applies to removal of debris, preservation
of property, fire department service charges
and pollutant cleanup and removal. The coverage
extensions and the additional coverages have
limitations and are subject to certain conditions.
Limit of Insurance
The most the insurer will pay for loss or
damage in any one occurrence is the limit
of insurance stated in the policy declarations.
Deductible
The standard deductible is $500. However,
other deductible amounts are available and
the deductible applies only once per loss.
Causes of Loss
The term peril is used when discussing losses.
A peril is a cause of loss. Basic property
insurance policies are written to cover the
perils of fire, lightning, explosion, windstorm,
hail, smoke, aircraft or vehicle damage, riot
or civil commotion, vandalism, sprinkler leakage,
sinkhole collapse, and volcanic action. Other
property insurance policies, often referred
to as the broad form policy, add coverages
for water damage, weight of snow, ice or sleet,
breakage of glass and coverage for falling
objects. The broadest coverage is the special
form, which is best known as the all risk
form. All risk covers all causes of loss,
except those specifically excluded from coverage.
It is possible for a commercial property policy
to have more than one cause of loss form.
Replacement Cost and Actual Cash Value
Property can be valued in several different
ways. Insurance companies commonly use two
approaches to determine value, which also
determines how a loss will be paid; the replacement
cost method and the actual cash value method.
Insurers consider replacement cost of a property
item to be the cost to replace it with new
property of like kind. Actual cash value is
replacement cost, minus the accumulated depreciation
for age and condition.
Agreed Value
When the agreed value option is used the coinsurance
requirement is removed and the insurer agrees
to cover loses for it's agreed value. As an
example, the insured has property insured
for $100,000 and the agreed value is also
$100,000, if a loss occurs, any loss up to
$100,000 is covered at 100% When this option
is used the insured and the insurance company
agree on the value of the property before
the policy is issued. This option is usually
assigned to one-of-a-kind property.
Coinsurance
Most building and business personal property
polices have a coinsurance clause which requires
the insured to carry insurance equal to at
least a specified percentage of the actual
cash value of the property. If a loss occurs,
and it is determined that the amount of insurance
carried is less than the amount required,
a penalty could be placed on the insured.
Inflation Guard
An insured can insure a building for its full
value at the beginning of the policy year,
but, at the end of the year, it might not
be covered for it's full value. This problem
can be corrected by adding inflation guard
coverage. With inflation guard, the policy
limit increases gradually during the policy
term so that the total increase amounts to
the desired percentage increase at the end
of the policy term.
Earthquake Coverage
This endorsement extends your cause of loss
to include damage that results directly from
an earthquake. Coverage is provided for replacement
of buildings only. All earthquake shocks that
occur within a 168 hour period (one week)
are considered to be a single occurrence.
A separate deductible applies and is determined
by the value of the insured property.
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