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. This article provides more information on scheduled and blanket limits, outlines the main distinctions between them, and weighs the advantages and disadvantages of these coverage offerings.
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.
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:
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.
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:
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.
Organizations don’t have to navigate the commercial property insurance landscape alone; they can consult trusted insurance professionals to assess their coverage needs and determine which types of limits are most suitable for their assets and operations. Contact us today for more insurance solutions.
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