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Do Your Homework Before Choosing Business Property Insurance

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Business property insurance is a must to protect your company's assets. While business property insurance isn't required by law, it's a wise investment to limit your liability in the event of a natural disaster or other calamity. Without it, your business may not survive financially.

Most business property insurance plans are tailored to the business and can cover a variety of losses, including damage from fires, electrical surges, even embezzlement by an employee. The legal Web site Nolo.com recommends that business property insurance policies cover fixtures such as lighting systems or carpeting, equipment and machinery, furniture, inventory and computers.

Types of Business Property Insurance

Business property insurance plans can be either basic form policies, which provide coverage for damages caused by such events as fires and storms, or special form coverage, which offers broader coverage. Special form coverage protects all property with certain exceptions, such as terrorist acts and floods.

One insurance option is a business owners policy, which provides coverage for your property and many business-related assets inside or around your building. A business owners policy combines property and liability insurance.

According to the Insurance Information Institute, a business owner's policy also covers the property of customers and others who have physical assets on your premises. For example, if a fire damages a customer’s car in your repair shop, your business owner's policy would cover the vehicle.

A business owner's policy and other business property insurance plans can also cover lost income due to the disaster as well as the additional costs of operating from a temporary location. However, vehicles are generally not covered by such policies, nor are financial assets kept on hand such as cash or bouillon. If they’re destroyed, they’re gone, unless additional insurance covering these items specifically is held.

If you want additional insurance to cover losses such as those caused by fraud, burglary or robbery -- which basic business owners policies and property insurance do not cover -- you can add them onto your policy. These riders may also include data protection, personal assets and computer virus protection. They will raise your premiums, but the additional coverage may be necessary in certain areas.

Understand Your Business Property Insurance Policy

It's important to fully understand your policy. If you have guaranteed replacement cost insurance, for example, your insurance company will pay to replace your damaged property. An actual cash value policy will only pay you for the current value of the property.

If you rent a property, check your agreement carefully: You may be covered by the owner’s policy, or you may be required to have property insurance. If you're in an area prone to floods, earthquakes or hurricanes, you should seriously consider purchasing disaster insurance.

Tiare Rath is a freelance journalist and a former personal finance columnist for MarketWatch.com.

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