Business Fire Insurance: What Businesses Should Consider When Looking for Fire Coverage

One careless act or an unexpected electrical malfunction can send your business up in flames.

A business fire can cause significant damage — and significant cost. In the event of a business fire, you don’t want to be the person handed the bill.

This is why business fire insurance is so important. In this guide, we will explain why business fire insurance is an essential policy to add to your business insurance coverage.

What Is a Business Fire Insurance Policy?

Also known as a Commercial Fire Insurance policy, a business fire insurance policy reimburses you for fire damages caused on your business property. As a policyholder, you’ll receive a cash payout to cover damages in the event of a fire.

Do You Really Need a Business Fire Insurance Policy for Your Business?

What are the chances of your business catching fire? It can be tempting to roll the dice and opt to not pay for business fire insurance. 

However, business fires occur more often than you may think. And no amount of fire prevention efforts can protect you from situations outside of your control. 

The U.S. Fire Administration releases 10-year fire trends for non-residential fires. 

The 2020 national estimates for non-residential fires reported:

• 103,400 non-residential fires nationwide
• 95 deaths
• 1,025 injuries; and
• A whopping total of $3,289,600,000 in loss

The amount of financial risk involved with a business fire greatly outweighs paying a monthly premium to protect your business from costs associated with fire damage and property loss.

Business Fire Insurance vs. Commercial Property Insurance

Many business owners assume that their commercial property insurance covers fire damage. And while the majority of commercial property insurance policies do cover “peril by fire”, there are a few reasons why you may want to look into a business fire insurance policy: 

• Policy changes. Commercial insurance policies are subject to change over the years. Changes in your policy about fire damage coverage may leave you wanting a business fire insurance plan for additional coverage and peace of mind.
• Endorsements. When it comes to commercial property insurance and business fire insurance, included and excluded losses for fire damage can vary greatly. A business fire insurance plan can cover exclusions in your commercial property insurance plan.

What Does a Business Fire Insurance Policy Cover? 

Ultimately, the strength of your business fire insurance policy will determine the type of coverage for fire damages. Some damages that may be covered by your business fire insurance policy include:

• Structure and property damage
• Property of others
• Incidental fire destruction, such as smoke damage and charring
• Loss of income due to prolonged business closure
• Damage caused by firefighters.
• And more

Business Buildings

Your policy should cover any buildings that your business owns, from offices to commercial worksites. In addition to covering the actual building, your policy should also cover: 

• Landscaping
• Fences
• Outdoor signs, and
• Tenant improvements

If your business building is leased or rented, your rental or leasing requirement likely requires fire insurance. Fire insurance can be set up for your landlord’s building to protect your place of business and assets.

Building Contents

Inventory stored on or near your business premises may be covered by your fire insurance policy. This can include: 

• Work equipment
• Tools
• Furniture
• Computers
• And more

Leased property/equipment can also be insured, which is a requirement of many vendors.

Records and papers are often the most valuable items destroyed in business fires. While business fire insurance may provide some coverage for records and papers, you may want to consider additional protection with a valuable papers and records coverage policy.

Property of Others

Leased and borrowed property can also be covered by a business fire insurance policy. However, the limit of liability for borrowed contents is separate from your owned contents coverage and is typically low by default. You can increase the limit of liability for borrowed property by paying additional premiums.

If you own a business that has frequent possession of others’ belongings, such as a … 

• Valet parking business
• Dry cleaning business
• Computer repair business
• Etc

… then this coverage will not be sufficient for your business. In this case, you should consider bailee’s customer insurance.

Perils Related to the Fire

A business fire insurance policy also covers some indirect damages sustained in the event of a fire. The efforts from the fire department required to put out the fire can cause significant damage to your business property and contents. 

Commercial fire policies can provide coverage for these damages, including damage caused by: 

• Falling objects
• Fire extinguisher foams
• Water damage incurred by a sprinkler system
• Gas carbon dioxide damage
• Hydrocarbon halide damage
• Dry powder damage
• Fire department fees

You may also be charged for a Fire Department Service Charge Coverage from your local fire department. This charge helps cover most of the cost, resources, and time the city has to provide in the event your business catches on fire. 

This cost is usually covered in your commercial insurance coverage and can run anywhere from five hundred dollars to several thousand dollars.

What Does a Business Fire Insurance Policy Not Cover?

Ultimately, exclusions in your business fire insurance plan will depend on the strength of your policy. However, nearly all business fire insurance policies exclude fire damage caused by:

• War
• Nuclear risks
• Earthquakes; and
• Floods

Friendly Fires

Fires can be classified as “hostile” or “friendly”:

• Hostile fire: A fire that is started unintentionally. Eg. an electrical fire or case of arson.
• Friendly fire: A fire that was willingly lit. Eg. A candle flame or a burning log in a fireplace.

Unless a friendly fire spreads outside of its container, it is generally not covered in a business fire insurance policy. For example, if something accidentally falls into a lit fireplace, your policy would not cover damages incurred because the fire never left its container.

Commercial Casualty

A business fire insurance policy generally does not cover third-party damages and injury. For example, if a fire at your business results in damage to a neighboring business, your insurance policy would not cover their property damages. 

To help cover damage to others’ property and bodily injury to others, you should consider a commercial general liability policy.

Loss of revenue is also typically not covered by business fire insurance. To help deal with loss of income from business closure due to fire damage, you should consider a business interruption insurance policy.

How Much Does Business Fire Insurance Cost?

Typically commercial fire insurance is purchased through property insurance. You may also have the opportunity to buy business fire insurance as part of a business owner’s policy bundle.

Business fire insurance rates will vary by insurer. Typically the following considerations play into the cost of your policy: 

• Fire department proximity: Buildings that are in close proximity to the fire department tend to have lower premiums.
• Building’s fire preparedness: Having equipment like sprinklers and fire alarm systems in the building can be rewarded with discounts.
• Flammability of building materials: Buildings that are made with quick-burning materials will be charged a higher premium.
• Flammability of the building’s contents: Buildings that contain highly flammable contents such as newspapers, wood, or gasoline will be charged a higher premium.
• Nearby tenant risk: Buildings located near high-risk businesses, such as gas stations and restaurants, will be charged higher premiums.

How To Choose the Best Business Fire Insurance Policy for Your Business

#1: Assess Your Risks

Before shopping for business fire insurance, take stock of your risks. For example:

• Do you frequently have possession of another's property as part of your business? 
• What is your proximity to the closest fire department? 
• Do you have fire preparedness equipment, such as a fire alarm system and sprinklers installed in your building? 

Evaluating your risks can help you choose the right business fire insurance policy to best protect your business in the event of a fire.

While you’re assessing your risks, considers risks you may be able to mitigate:

• Do you have a fire alarm installed?
• Do you have a sprinkler system installed?
• Do you have a fire safety plan in place?
• Are your employees aware of your fire safety plan? Do you have a fire safety drill to ensure everyone knows how to evacuate the building in the event of a fire?

Implementing fire safety and prevention plans not only helps mitigate the risk of a business fire but may also be considered by insurance companies when establishing your premiums.

#2: Consider Premium Costs

Business fire insurance policies are generally affordable. However, it is a cost and risk that you will want to budget for your business.

Your premium costs can vary depending on how you choose to be reimbursed for fire damages. For example: 

• If you opt to receive cash value for property damages caused by a fire, your premium may be lower. However, this is because your payout will also be lower.
• If you opt to receive replacement costs for property damage, your premium will be higher because the payout will be higher.

Make sure to weigh these options carefully. While it may be tempting to opt for a lower premium, ask yourself which option will provide you with the most peace of mind and protection in the event the unthinkable happens.

#3: Consult With a Professional

Figuring out which insurance policies and premiums your business needs to be protected in the event of a fire can be challenging. There is a lot of decision-making and risk assessment involved. 

It’s never a bad idea to consult with an insurance professional that can help you understand the choices available to you and which choices may make the most sense for your business and desired coverage.