Fire insurance for small businesses: protect yourself and your bottom line
Fire damage is one of most frequent small business insurance claims and one of the most expensive, according to an analysis by The Hartford insurance company. The insurer estimates that four out of 10 small businesses will file a claim on their commercial fire insurance policy within the next 10 years.
Commercial property insurance usually covers fire damage. Taking steps to reduce your risks and having the right insurance in place can help you minimize the chances of a fire – and help you recover if there is one.
How commercial insurance can help you recover from a fire
A fire doesn’t just destroy your property. It can leave you liable for damage to customers’ or other third parties’ property. It can also bring your business to a grinding halt. That’s why you should consider the following common insurance policies to guard against the risk of fires. Together, this insurance coverage can replace or repair damaged property and help keep your business running.
Commercial property insurance
These policies are typically affordable. You can help manage your premium costs by choosing how you wish to be reimbursed for a loss. You have the option of receiving either the replacement costs for all brand-new items or their actual cash value.
For example, if a restaurant has a kitchen fire, the owner might want property coverage to pay for all brand-new equipment. To save money, they might prefer to be reimbursed for the actual cash value of the equipment, which would be lessened by any depreciation from the time of purchase.
Opting for all new equipment would require a higher premium, but would also increase the amount you can receive on your claim after a fire.
General liability insurance
A general liability insurance policy covers common risks like third-party injury or property damage, along with lawsuits over defamation.
In the case of a commercial fire claim, this liability coverage would cover the costs of any customer property that was damaged or destroyed. A general liability policy could also pay to treat any injuries if a customer, vendor, or other third party was injured due to a fire at your business.
Business owner’s policy
A business owner’s policy (BOP) is a smart bet for many small businesses. This coverage combines your general liability insurance and commercial property insurance into one policy, typically at a discount.
For example, if a computer repair shop suffered an electrical fire, a BOP would pay for the loss of your own equipment. It would also cover any of your customers’ personal property that was damaged or destroyed.
Not every small business owner will qualify for a BOP, so speak to an insurance agent to find out if you’re eligible.
Business interruption insurance
Business interruption insurance, also known as business income insurance, is typically available as a rider to commercial property policies or BOPs. This additional coverage kicks in when your business must close temporarily because of an unexpected event, such as a fire or natural disaster.
Business interruption can cover a variety of business and operating expenses, including:
- Rent payments
- Employee salaries
- Relocation costs
- Loss of business income
- Debt payments
For example, let’s say you have an electrical fire in the server room of your IT consulting company that destroys your offices. You’re forced to close while you find a temporary office space and equipment. A business interruption insurance rider on your BOP would cover your rent payments and relocation costs.
Commercial auto insurance
If you have a company-owned vehicle, you’re probably required by law to carry a commercial auto insurance policy. In the event of an accident, it helps cover the costs of related injuries and property damage. It can also protect your vehicles from fire damage, too.
Comprehensive coverage typically covers business vehicle damage due to vandalism, burglaries, fires, or water damage.
For example, let’s say there’s a fire at your carpet cleaning business’s garage where you’ve parked your two work vans. Comprehensive commercial auto insurance would cover the cost of the damaged vehicles.
This coverage is especially important in areas where the risks of wildfires and other disasters are high. You should talk to an agent to be sure there are no restrictions or exclusions in your policy based upon your location.
How to reduce the risk of fire at your business
As much as your business property insurance offers financial protection from fires, it’s also important to reduce the risk of one happening in the first place – and to keep it from spreading or hurting anyone if it happens.
Here are some preventive measures you can take to reduce risk and increase safety:
- Inspect your fire extinguishers on a regular basis and make sure they’re in compliance with local fire codes. Consider buying other equipment and supplies, such as fire blankets.
- Install sprinklers or other fire suppression systems.
- Make sure all employees know how to use equipment and where it’s located.
- Clean and inspect all equipment on a regular basis, especially cooking and manufacturing gear. Consider hiring a third-party cleaning contractor to make sure this is done properly.
- Reduce clutter and make sure all flammable materials are properly stored.
As much as your business property insurance offers financial protection from fires, it’s also important to reduce the risk of one happening in the first place.
- Have at least two fire exits that are properly labeled, easily accessible, and known to all employees. Hold fire drills at least once a year.
- Maintain the landscaping around your building by clearing brush and trimming trees near your building, especially in wildfire-prone areas.
- Ban risky appliances, such as space heaters, from the building. Keep electrical appliances, such as toasters and coffeemakers, away from paper and other flammables.
- If you own a restaurant, make sure you have a UL 300-compliant wet chemical fire suppression system and follow the NFPA 96 standard for ventilation and fire protection.
Keep in mind that any changes to your business, such as buying new equipment or a change in procedures, can have a significant impact on the need of fire insurance for your business, fire protection equipment, and safety training for your employees. Stay on top of these changes to ensure the best protection possible.
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