Commercial property insurance is an essential form of coverage for any organization. Such a policy can provide much-needed financial protection if an organization’s commercial building or its contents are damaged or destroyed by covered perils (e.g., fire, theft, vandalism, wind and lightning). Specifically, this coverage can help reimburse property repair or replacement expenses when these perils occur.
A commercial property policy is usually subject to a coverage limit, which refers to the maximum amount an insurance carrier pays toward a claim after the deductible is met. There are two main types of coverage limits available under commercial property insurance: scheduled and blanket. These limits largely determine the extent of financial protection afforded to an organization’s property amid potential losses, thus playing a major role in the valuation and claims processes.
With this in mind, it’s important for organizations to know the differences between these limits and better understand how their commercial property policies will respond when losses occur.
Scheduled Limits
Also known as a specific limit, a scheduled limit applies to individual property or assets at a single insured location; in other words, each property or asset has a personalized limit of coverage. This means that each of an organization’s commercial buildings may have its own coverage limit, and the various contents stored within each building—commonly called business personal property (BPP)—may also have separate limits. For example, if an organization has two insured locations, one location may have coverage limits of $1 million for the building and $500,000 for the BPP, whereas the second location may have different limits, such as $2 million for the building and $750,000 for the BPP.
When an organization has a commercial property policy with scheduled limits, it’s imperative to itemize each asset with its respective value and update these values as needed (e.g., upon making property updates or after purchasing new assets). In doing so, the organization can maintain accurate coverage limits for individual property and avoid costly out-of-pocket losses when claims arise.
Blanket Limits
A blanket limit either applies to several different assets at a single insured location or the same types of property across multiple locations. In some cases, a blanket limit may even apply to all property at any insured location. Rather than each property being assigned a specific limit, the same limit applies to all assets, therefore providing a blanket of coverage. For instance, an organization may have a coverage limit of $1.5 million for both its commercial building and BPP at a single location. On the other hand, if an organization has multiple insured locations, it may leverage one of the following blanket limit options:
- Separate coverage limits for buildings and BPP—With this option, the organization may have a blanket limit of $2 million for its buildings and $1 million for its BPP, regardless of location.
- Separate coverage limits for each location—Alternatively, the organization may have a blanket limit of $1.25 million for both its building and BPP at one location and $1.75 million for the same types of assets at another location.
- The same coverage limit for all properties and locations—Finally, the organization may have a single blanket limit of $3 million for both its buildings and BPP across all locations.
Commercial property policies with blanket limits are known to offer more coverage flexibility as property values fluctuate and assets get moved around, ultimately lowering the likelihood of underinsurance concerns and minimizing out-of-pocket losses.
Coverage Differences
In addition to the distinctions in how commercial property is itemized and valued, here are some of the key coverage differences between scheduled and blanket limits:
- Premium costs—In most cases, commercial property policies with blanket limits are more expensive to obtain than those with scheduled limits. That is, a policy offering the same coverage will typically carry higher premiums with blanket limits than with scheduled limits.
- Coinsurance penalties—Coinsurance clauses are included in many commercial property policies. Such a clause requires a policyholder to maintain a minimum amount of coverage (usually between 80% and 90% of the value of their insured property). If the policyholder submits a claim and an inspection reveals that their coverage doesn’t meet the minimum amount, the insurance carrier will penalize the policyholder by paying a reduced percentage of the claim. Because scheduled limits require organizations to ensure accurate values for individual property and assets, they could leave organizations more vulnerable to coinsurance penalties than blanket limits. After all, just one undervalued asset can invoke a penalty with scheduled limits, whereas blanket limits allow for more leeway when property values change.
- Margin clauses—Commercial property policies with blanket limits sometimes include mandated coverage endorsements known as margin clauses. This type of clause generally states that the insurance carrier won’t pay more than a certain percentage of commercial building and BPP values (usually between 110% and 125%) toward a large-scale claim, thus preventing the policyholder from potentially abusing their blanket limit and leveraging the entirety of their coverage to reimburse one major loss. Yet, even with margin clauses, commercial property policies with blanket limits tend to offer more coverage versatility than those with scheduled limits. Nevertheless, it’s best for organizations that have policies with blanket limits to be aware of margin clauses and their related stipulations.
Advantages and Disadvantages
The primary benefits of commercial property policies with scheduled limits are that this coverage often includes less expensive premiums than its blanket counterpart and can provide organizations with greater control over the valuation of individual property and assets. However, maintaining up-to-date values for all commercial buildings and BPP can also leave organizations with substantial administrative responsibilities. What’s more, failing to uphold accurate values for all property and assets can result in serious consequences, including coinsurance penalties and underinsurance concerns.
As it pertains to commercial property policies with blanket limits, this coverage can allow organizations to simplify their property valuation processes by applying a single limit across different buildings and BPP. Further, blanket limits can offer greater coverage fluidity and significantly mitigate out-of-pocket losses. Even so, this coverage carries a higher initial price tag and still comes with restrictions (i.e., margin clauses) that can limit total claim payouts.
Be Sure
Organizations don’t have to navigate the commercial property insurance landscape alone. For more peace of mind, consult the trusted insurance professionals at Deeley Insurance Group to assess your coverage needs and determine which types of limits are most suitable for your assets and operations.
Deeley was voted “The Best” Insurance Agency in the region by readers of Coastal Style magazine. Call or text us at 410-213-5600.
