Last Updated on October 21, 2026 by Syed Sarim Naqvi
Commercial property insurance covers a business’s buildings, equipment, inventory and fixtures against fire, theft, vandalism and other covered causes of loss. Policies are built from a coverage form plus a causes-of-loss form (basic, broad or special), most include a coinsurance clause of 80%, 90% or 100% that penalizes underinsurance, and flood and earthquake are excluded unless you buy them separately.
Key Takeaways
- Commercial property is modular: a coverage form says what is covered and a causes-of-loss form says which perils trigger payment
- The three causes-of-loss forms are basic, broad and special, and special (open-peril) is the most common because it protects against the most perils
- A coinsurance clause typically requires insuring to 80%, 90% or 100% of value, and carrying less triggers a penalty when you claim
- Actual cash value deducts depreciation, so a 10-year-old roof might pay only 30% to 40% of replacement cost, per one legal-guide estimate
- Flood, earthquake and often mold, pollution and cyber losses need separate cover
What Is Commercial Property Insurance?
Westfield Insurance, in a Small Business News explainer, says most property policies cover tangible property and that the property portion contains a declarations page, coverage forms, causes-of-loss forms, conditions and endorsements. The University of Texas CLE materials describe property insurance as the owner’s own cover for property loss, including replacement cost or actual cash value of property lost or destroyed, and note loss of rents and business losses are added separately. Momentous Insurance Brokerage adds that the policy covers actual, unintentional physical loss to an asset, such as a fire or something broken, vandalized or stolen.
Basic, Broad or Special: Which Form?
| Form | Basis | What It Means |
|---|---|---|
| Basic (ISO CP 10 10) | Named perils | Covers common listed perils such as fire, lightning and windstorm |
| Broad (ISO CP 10 20) | Expanded named perils | Adds further listed perils, such as sprinkler leakage or falling objects |
| Special (ISO CP 10 30) | Open perils (“all risks”) | Covers all direct physical loss except what is excluded |
The form numbers come from a Bradley law firm webinar, and the descriptions from the University of Texas CLE and Westfield materials. The UT CLE guide says a lender should require a special causes-of-loss policy, and Momentous says most businesses start with special form.
How Does Coinsurance Work?
The Maine Bureau of Insurance explains that most insurers require you to insure property for at least 80% of its replacement cost, and that failing to do so triggers a coinsurance penalty at the time of a claim. Momentous gives a simple example: with $1 million of property and 80% coinsurance, you must carry at least $800,000. InsuranceXDate’s study guide gives the formula as carried amount divided by required amount, multiplied by the loss. As an illustration only, take property worth $250,000 with 80% coinsurance, so $200,000 is required. If you carry $100,000, you are insuring half of what is required, so a $50,000 loss would pay about $25,000 before the deductible. An agreed value option, documented up front, can suspend coinsurance, according to Westfield and terms.law.
- Review values yearly: the Maine regulator stresses that the value that matters is the cost to repair or replace at the time of loss
- Choose agreed value where possible: it removes the penalty if the value is documented
Replacement Cost or Actual Cash Value?
Terms.law explains that replacement cost pays to replace damaged property with new property of similar kind and quality without deducting depreciation, while actual cash value is replacement cost minus depreciation. It estimates a 10-year-old roof might pay only 30% to 40% of replacement cost under ACV. Momentous gives another example: an item bought ten years ago with an eight-year useful life may return almost nothing on an ACV basis, while replacement cost allows replacement with like kind and quality even if it costs more than the original price. The Maine regulator reminds owners not to confuse either basis with market value.
What Is Not Covered?
Westfield says flood is not included in any of the standard causes-of-loss forms and can be bought from private insurers or the National Flood Insurance Program. Terms.law says even all-risk policies have significant exclusions, with flood, earthquake, mold, pollution and cyber-related losses typically needing separate cover. The Bradley webinar lists typical exclusions including flood, earth movement, war and terrorism, and notes anti-concurrent causation clauses can exclude a loss even when multiple causes combine. Momentous adds that a property policy can often be endorsed to cover sprinkler leakage from an earthquake, and that fire damage after an earthquake would still be covered.
How Does This Connect to the Rest of Specialty Insurance?
Commercial property is the backbone of the bundled policy in Business Owner’s Policy (BOP) Explained, with lost income covered in Business Interruption Insurance Explained. Excluded perils are in Flood Insurance Explained and Earthquake Insurance Explained, and storm deductibles in Hurricane and Wind/Hail Deductibles Explained. For under-construction buildings, see Builders Risk Insurance Explained, and for a rented-out building, Landlord Insurance Explained.
FAQ
What does commercial property insurance cover?
Buildings, equipment, inventory and fixtures against covered causes of loss such as fire, theft and vandalism.
What is a causes-of-loss form?
The part of the policy that lists which perils trigger coverage: basic, broad or special.
What is coinsurance?
A clause requiring you to insure property to a set percentage of its value, typically 80%, 90% or 100%, or face a penalty on claims.
How can I avoid a coinsurance penalty?
Insure to the required percentage of replacement cost or use an agreed value option.
What is the difference between replacement cost and ACV?
Replacement cost pays to replace without depreciation, while ACV deducts depreciation.
Does it cover flood or earthquake?
No. Those perils need separate policies.
Is a special form worth it?
Most brokers start with it, and lenders often require it, since it covers all perils not excluded.
Glossary
- Causes-of-Loss Form: the form setting which perils the policy covers.
- Special Form: open-peril cover that insures everything not excluded.
- Coinsurance: a requirement to insure to a percentage of property value.
- Agreed Value: a pre-agreed property value that suspends coinsurance.
- Replacement Cost: payment to replace property without depreciation.
- Actual Cash Value (ACV): replacement cost minus depreciation.
Sources
- Maine Bureau of Insurance: Insuring Your Business (basic and broad forms, coinsurance penalty, valuation)
- Small Business News (Westfield Insurance): Property Coverage Basics (policy structure, special form, flood exclusion, agreed value)
- Small Business News (Momentous Insurance Brokerage): Business Property Insurance (coinsurance example, ACV example, endorsements)
- Terms.law: Understanding Commercial Property Coverage (special form exclusions, ACV versus replacement cost, agreed value)
- Bradley: Policyholder Insurance for Commercial Insureds (ISO form numbers, typical exclusions, anti-concurrent causation)
- University of Texas CLE: Understanding Property Insurance (lender requirement, flood and earthquake gaps)
- InsuranceXDate: Commercial Property Policies Study Guide (modular structure, coinsurance formula)
Related reading: Restaurant Insurance Explained · Contractor Tools and Equipment Insurance Explained · Commercial Crime Insurance Explained
Published October 2026. Premiums, forms and exclusions vary by insurer, state and property and change often; always confirm your coinsurance percentage and valuation basis, and refresh this article periodically.
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