Commercial Property Coverage
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 way. 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 losses for its 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 a one-of-a-kind
property.
Coinsurance
Most building and business personal property policies 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 its 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.
Flood Coverage
This endorsement extends your cause of loss to include damage that results directly from a flood.
The term means waves, tide or tidal water, and the rising (including the overflowing or breaking of
boundaries) of lakes, ponds, reservoirs, rivers, harbors, streams, and similar bodies of water,
whether driven by wind or not. The definition of flood insurance can vary from one insurance
provider to another, especially with respect to surface water and whether it is covered or not
covered. The National Flood Insurance Program provides flood coverage in areas or zones designated
to be in the 100-year or 500-year Flood Plain.
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