What Types of Damage Are Covered by Commercial Property Insurance?

From fires to vandalism, commercial properties face a wide range of physical threats. Whether you own your building or lease your space, commercial property insurance is designed to protect the physical structure and its contents from common causes of loss.

This becomes especially important when your business depends on valuable equipment, inventory, or a location that generates foot traffic. You might think about this the next time you expand operations, upgrade your workspace, or experience a close call with severe weather.

Common Types of Covered Damage

Commercial property insurance typically covers direct physical loss or damage caused by specific, named perils. These include:

Fire and smoke: Coverage usually includes structural repairs, smoke cleanup, and replacement of damaged contents.
Theft and vandalism: Reimbursement is available for stolen inventory, broken windows, graffiti, or destroyed fixtures.
Water damage: Protection applies to sudden and accidental events like burst pipes or leaks from internal plumbing—not flooding or seepage.
Wind and hail: Damage to roofs, siding, or signage caused by windstorms and hail is usually included, depending on your region.
Explosion or impact: If your building is struck by a vehicle or damaged by an explosion, your policy generally provides compensation.

Type of Damage	Covered by Standard Policy?	Additional Notes
Fire and smoke	Yes	Includes interior and contents restoration
Theft or vandalism	Yes	Often requires a police report for claim
Flooding from river/lake	No	Must be added as separate flood coverage
Burst pipe water damage	Yes	Sudden internal plumbing failure is covered

Tip: Review your policy’s “named perils” or “all-risk” wording to see what is automatically included and what requires additional endorsements.

What Damage Is Not Covered?

There are important limitations to be aware of. Standard commercial property insurance generally does not cover:

Flooding from overland water, storm surge, or rising rivers
Earthquake or ground movement damage unless added as a rider
Damage caused by normal wear and tear, rust, or gradual deterioration
Equipment breakdown unless a specific endorsement is included
Cyberattacks or data loss—this falls under cyber liability coverage

Note: Many of these exclusions can be addressed with optional add-ons. For example, if your area is prone to flooding or earthquakes, a separate rider can help protect against these high-cost events.

How Claims Are Paid After Covered Damage

When damage does occur, the way your claim is paid depends on your policy structure. Most insurers offer two valuation methods:

Actual cash value: This pays the current value of the damaged item, factoring in depreciation for age and wear.
Replacement cost: This pays what it would cost to replace the item new, without accounting for depreciation.

Choosing replacement cost coverage typically results in higher payouts and better recovery potential. However, it also tends to come with slightly higher premiums.

Caution: If your business property is underinsured—meaning your coverage limit is lower than the actual value of your assets—you may not receive full reimbursement even after a valid claim. Make sure your policy reflects the current value of your space and contents.

The Importance of Reviewing Your Risk Profile

Not every business faces the same hazards. A bakery, for instance, has different risk exposures than a car dealership or an accounting office. Where your business is located also affects which natural disasters are most likely.

Inland cities may worry more about fires and hail damage
Coastal regions face higher risks from hurricanes and flooding
Urban centers may have greater exposure to vandalism and theft

Reviewing your property’s vulnerability and matching it with appropriate coverage ensures your business can recover quickly when something goes wrong.