For business owners, damage to a building’s contents may be more devastating than damage to the building itself. The value of contents isn’t limited to their worth, but they often produce critical cash flow just like the building. These contents may be equipment, machinery, furnishings, inventory, or stock, and their value can exceed the building that houses them. Thus, business owners should carefully consider business contents insurance while realizing property insurance policies handle contents separately and may even value them differently. Gaining an understanding of business contents insurance will help ensure no part of your business will unknowingly go unprotected.
Building Versus Contents
Insurance policies consider items permanently attached to a building as being part of the building. Thus, the value of equipment used to service the building, such as heating and cooling, elevators, or security systems, is protected as part of the building. Anything not a permanent part of the building is considered contents. Even large production machinery, though it may take days to disassemble and move, is still contents.
Insurance policies group contents into several categories according to risks of damage common to each. A contractor’s welder that moves from job site to job site faces different risks than the same welder housed in a central location. Thus, each category is assigned a separate limit of insurance on the insurance policy.
These are contents owned by the business and housed on premises. This is typically the largest category. Take care that policies adequately cover increases in contents due to seasonal demand.
Contents of Others
These are contents owned by others but housed on the premises of the business. This category is essential for businesses that regularly handle property that belongs to someone else, such as their clients. Contractors, auto repair shops, dry cleaners, installers, certain storage businesses, and galleries all frequently handle belongings of others, and these contents are not included in standard polices unless a limit of insurance is shown for this category.
Contents Off Site
Insurance coverage for regular business contents ends when they leave the premises. This category covers contents owned by the business but stored elsewhere. Coverage for these contents can either be provided by adding a limit of insurance to contents off site or by adding the off site premises to the policy as an insured location.
Contents in Transit
Examples of these items include equipment in company vehicles, finished goods while in transit to their destination, or contractor’s equipment. This category is a great way to add basic coverage to traveling contents without the need for a separate policy. However, if contents move about regularly, a mobile equipment policy should be considered. Also, if your company frequently ships goods at your own risk, a transportation insurance policy is a good option.
The following are typically provided on policies separate from property insurance but bear mentioning here.
These policies are often called “inland marine” and are not only used for equipment but almost any contents that frequently move about, from hand tools to the largest of cranes. This coverage is designed for mobile contents and provides broader protection than a property insurance policy.
Transportation coverage comes in many different forms. Not to confuse matters, but several use inland marine policies just like mobile equipment. Transportation coverage exists for most situations such as shipping by business-owned vehicles, common or contract carrier, trains, aircraft, or ocean vessels.
Your insurance agent can advise on the best means to protect your business contents. Each category has its own nuance. For example, a forklift can be protected as regular contents or as mobile equipment. Insuring it as regular contents is easy and less expensive, but a mobile equipment/inland marine policy has fewer exclusions, is more flexible, and even includes coverage for flood.
Valuing Contents – Replacement Cost or Actual Cash Value
When contents are damaged, a value needs to be assigned to them so the claim can be paid. Values are assigned using either replacement cost or actual cash value. Replacement cost, as the name suggests, values the damaged items at what it would cost to replace them, new for old. Actual cash value, however, reduces value for depreciation. In this manner, actual cash value is similar to, but not the same as, the market value of an item. For more valuation options and their detail, reference Property Insurance Valuation.
- Business Income Insurance: can be added to a property insurance policy and protects a business against lost income when property is damaged. This may apply to the building or contents; it does not discriminate. Either one may result in reduced income while the building is rebuilt or contents are replaced. However, business income coverage on a property policy does not extend to a mobile equipment/inland marine policy. This protection must be added to such a policy separately.
- Sales Price Valuation: an endorsement to a property insurance policy that values finished goods at sales value versus the cost to produce it.
- Seasonal Demand Increase: an endorsement that provides flexibility for seasonal value fluctuations, expressed as a percentage, such as 10%. In this example, if a business carries $100,000 in contents coverage, up to $110,000 during peak season would be covered.
- Blanket Coverage: protects all property, buildings and/or contents under a single blanket limit. This is ideal for contents that move between locations and allows a higher degree of flexibility. However, most blanket insurance policies require 100% coinsurance.
Questions regarding business contents insurance coverage? Contact your Bankers Insurance agent. Not a client of ours? Let us earn your business! Each client is assigned a personal agent in our office and provided a phone number that rings right on their desk.