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An introduction to how to calculate commercial property insurance rates. Every insurance company offering business property insurance has its own formula to help determine its risk or exposure, which is used to calculate your rates or premium.

How To Calculate Commercial Property Insurance Rates

Commercial insurance has many differences when compared to residential policies. There is much more at stake where businesses are concerned. The future loss of business from a disaster can result in loss of income for the duration of reconstruction.

Calculations for coverage amounts must include more than the basic property damage. Weeks or months may go by before the property is able to be used for business purposes. How to calculate commercial property insurance rates must take into consideration property value and future earnings potential.

The Basics

Usually insurance premiums for business properties are set by multiplying the value of the building and its contents by a value that the insurance company comes up with suitable level of risk. So properties with high risk have higher property insurance rates (crime, weather etc.), and low risk properties cost much less to insure. How to calculate commercial property insurance rates – following are some of the main factors that insurers use to determine your insurance premium:

Building Construction

How to calculate commercial property insurance rates. What materials were used in your building’s construction and its overall condition will effect your business property insurance rates. Buildings using fireproof materials like brick or stone, or those with fire-resistant walls and doors cost less to insure than wood frame building. New buildings, and those with recent electrical wiring, plumbing and HVAC systems upgrades typically less to insure because they can limit fire damages.


What the premises is sued for will effect the property insurance rate. A welding shop is going to have higher risks associated with it than an accountant’s office, and could cost more to insure. And if your business shares space with a higher risk business, your costs can increase due to your proximity to their higher risk operations.

Protection & Protection Class

A business that is located near a fire hydrant or fire station can lower your business property insurance rate. Also a burglar and or fire alarm system and sprinklers can also help lower your cost.

Exposure To Risk

Exposure to risks in the area where the business is located like criminal activity or the likelihood of accidents or natural disasters can impact your commercial property insurance rates. Also businesses close to yours can effect your premiums – for example, if your business is located near an fireworks factory or refinery, your commercial property insurance rates can be higher.

Average Commercial Property Insurance Rates

The first order of business is to make sure the building and its contents are covered. Since business owners often have expensive equipment, proof of purchase and pictures can help secure coverage. If you are leasing a section of a building, some of the basic structure coverage may fall to the owner. If you own the building, or run the business from your home, the coverage should be more complete. A business building is susceptible to the same elements as a home. These include fire, leaks, and weather damage. Business such as restaurants are more likely to catch fire, however. Ownership, use, and susceptibility are all considered with arranging a cost for a commercial policy.

The Contents

Business owners stand to lose immense amounts of income when it comes to the contents of a shop. An office may have less to lose, as there is no inventory. All of this is considered by the insurance company. A clothing store that is robbed may also have less monetary value than an electronics store.

Documentation of inventory is crucial in these case since inventory is usually purchased prior to being sold, unless special orders are concerned. The contents of a business building need to be covered as a loss under the policy. These are not future earnings, as they have been paid for by the company.

An office building stands to lose equipment such as printers and computers. These items are listed in detail when the policy is drawn up. A restaurant has all of the kitchen equipment built in, making it impossible to remove during a fire or flood. The cost of the entire kitchen is considered when calculating commercial costs. Restaurants are unique, as they often have retail, as well. Merchandise such as bottles of alcohol and souvenir shirts are included when replacement costs are concerned.

Future Earnings

The largest complication for businesses owners during a loss is their ability to continue making money. Revenue often comes to a complete halt for small business. It is pertinent to record regular earnings so the insurance company can estimate how much money may be lost while your business is out of commission. Large retailers may have more than one location, but still lose money from the particular location. Consumers may not wish to travel further away to receive services.

A home office may need less coverage for equipment, but may need calculate the costs of working from another location. As with all policies proper documentation all expenses is the key to receiving proper coverage.


Small and large businesses alike, have employees whose wages are dependent on a fully functioning location. The cost of a policy may be increased depending on how many people are working for the company. A small business with five employees is going to need less coverage than a large department store. Some of this may depend on the possibility of relocating workers to another location. In this case, however, comparable earnings are not always possible.

It is recommended to accept a quality amount of coverage to deal with any difficulties that may result from employee misplacement. The size of the business is significant for this part of the coverage.

How To Calculate Commercial Property Insurance Rates - The Bottom Line

We hope this article on how to calculate commercial property insurance rates was informative. Commercial polices are often complex and can be expensive. They cover more than simple structural damage. A small business, especially, may be the only income for an entire family.

Documentation is the best way to ensure that everything is properly covered in your policy. Expenses may be less for business owners that are in a rental contract for their location. Some of the coverage is carried by the property owner, in these cases. While costly, a good commercial insurance policy can help cover a multitude of expenses after a loss.

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