How to Determine the Right Fire Insurance Coverage for Your Business
Choosing the right amount of fire insurance coverage is critical for protecting your business. Underinsurance — having less coverage than your property is worth — can result in significant out-of-pocket costs after a loss. Most commercial property policies include an 80% coinsurance clause, meaning you must carry at least 80% of the replacement value to receive full claim payment.
To calculate your coverage needs, start with the building replacement cost: the amount it would take to rebuild your structure at today's prices. Add the value of all business personal property including equipment, furniture, inventory, and fixtures. Typical replacement costs in the US range from $100 to $300 per square foot depending on construction type and location. Update your coverage annually to account for inflation and property improvements.
Frequently Asked Questions
No. A landlord's building policy only covers the structure, not your equipment, inventory, or furniture. As a tenant, you need your own business personal property coverage.
Yes, business interruption (BI) insurance covers lost income if a fire forces your business to close temporarily. It is typically sold as an add-on to commercial property insurance and is highly recommended.
Review your coverage at least once a year, and whenever you make major renovations, purchase expensive equipment, or significantly change your inventory levels.