What is business personal property (BPP) insurance and how does it work

Carl Hoemke Aug 18, 2023

Almost every business carries property insurance of some kind, whether it’s for the building the company is housed in (building insurance) or the assets inside it (business personal property insurance). But just because insurance is a necessity doesn’t mean it should be viewed as an expense line item that’s out of your control. The same holds true for business personal property tax compliance — you have more control over the process than you might think.

The more you understand about business personal property insurance (or BPP insurance), the better equipped you’ll be to find the right coverage and an insurance partner you can trust. Before you get started, it’s important to know:

• Business personal property insurance: The essentials
• Price considerations for BPP insurance
• Tips for choosing a business personal property insurance provider
• Growing your business with the right partners

Business personal property insurance: The essentials

As noted above, the two standard types of business property insurance are building property and business personal property. Building property is the actual structure attached to the land and can include tenant’s improvements and betterments — improvements made to the space that become part of the building. Business personal property refers to the property generally located inside the building, and covers anything up to 100 feet outside the building that isn’t part of the permanent structure (non-real property). It also includes things like stock items for retailers or warehouses.

Insurance coverage for these areas is usually separate, mainly because policies are rated differently. Business personal property insurance is generally a bit more expensive than building property insurance because it has different risks. When something’s not permanently affixed to the building, the risk of something happening to it, like theft or loss, is increased.

Another reason building and personal property are separate is because a lot of businesses only need one or the other. Companies located in a leased building only need business personal property insurance; the landlords only need building insurance. If your company both owns and uses the building, such as a company headquarters, you likely need some combination of both.

Additionally, BPP insurance has extra coverage associated with it, usually applied to moveable items. For example, “property in transit” coverage insures things like computers transported to off-site meetings. And “business personal property of others” coverage insures property that may not belong to you but you’re responsible for; for instance, if an out-of-state business partner brings a laptop to your building during their visit.

Property insurance bundled with liability insurance is called a package policy. Package policies work for many businesses, but businesses with operations that are inherently more risky (due to the type of equipment they’re operating, for example) may not be able to bundle coverages in a package policy.

There isn’t a one-size-fits-all policy

FOne of the difficulties in talking about insurance in a general way is that almost every business has unique risks and challenges that need to be addressed. Some examples:

• An aircraft manufacturer may have numerous costly CNC machines (for creating high-precision components) that could potentially be damaged by a lightning strike to the building. Equipment breakdown coverage would help repair or replace their machines, should such a scenario occur.
• A trucking company wouldn’t worry about property insurance as much as it would auto liability insurance. Some companies have less need for property insurance and a greater need for other types of insurance.
• The contents of the average corporate office building are generally insured similarly. There are some risks associated with being in a building where you don’t know the maintenance schedule. You might encounter a situation where the sprinkler system goes off and you weren’t prepared. Many corporations that have multiple locations opt for a “blanket” business personal property policy. Such a policy would also cover stock items that travel between buildings. For this type of policy, you would disclose all your locations to your insurance company on an annual basis.

When deciding on business personal property insurance, it’s important to determine which coverage and risk factors are important for your business.

Price considerations for BPP insurance

AThe price of business property insurance is generally based on three things:

• The location of your building is a huge determining factor in the cost of insurance. And it’s not just about which state, county, or city the site is in. For example, those located closer to the coast or hazardous structures typically cost more to insure. Many insurance companies use a “tier” system to determine a building’s risk of damage based on its location, which will be different everywhere you go.
• The construction of your building plays a large role in what type of insurance you can buy and how expensive it is. The stronger the building material, the better rate you’ll be able to get. For instance, frame buildings made of combustible material (typically wood) burn down at a higher rate than those constructed with steel, affecting not only the real property, but the personal property within the structure. The Insurance Services Office (ISO) outlines six categories of building construction that many insurers use to help determine rates.
• Your deductible amount has a big impact on your monthly premium. The higher your deductibles are, the lower the cost of insurance will be. Generally, whether you decide to choose a higher deductible depends on your tolerance for risk. And there is some opportunity to fine-tune costs here: Business personal property isn’t typically exposed to the elements as much as real property. So in an area with, say, a high risk for severe storms, BPP deductibles can be lower than those for real property.

Is insurance price correlated to asset value as it appears on tax forms?

The simple answer is: No, the value of your assets as stated on your business personal property tax forms is not what is used for insurance purposes. A lot of customers assume that business personal property insurance is based on the asset value of their property, calculated using the same depreciation amount that they put on their tax forms. But insurance is actually based on replacement cost, not market value or what you claim on your tax forms. Whatever it would cost to repair or replace a lost, stolen, or damaged item in today’s market represents the value of your assets for insurance coverage.

Tips for choosing a business personal property insurance provider

AIf you’re in the market for a business personal property insurance provider, two things to consider from the outset are:

• When you speak with an insurance company for the first time, present your company in the best light. Have you implemented risk management techniques that help make your property safer? If so, point them out. Making yourself an attractive prospect to respected, reputable brokers gives you access to more options — and more competitive pricing.
• Look for brokers with a lot of different options rather than one that works for a single carrier. Having a wide variety of choices ensures your company gets exactly the policy it needs at the right price.

Wondering if you need to buy from an insurance provider in your region? Not necessarily. Many brokers are licensed to practice in numerous states. The most important thing is finding an insurance professional you can trust.

Growing your business with the right partners

Generally speaking, businesses grow by focusing their capital on the things they’re good at.

In the case of business personal property insurance, that means transferring your risk to the experts so you have the capital to hire new employees, create a new division, or do more research and development.

In the case of property tax compliance, that means utilizing your skilled talent for high-value tasks that can actually save your company money, not wasting their time on things like data entry.

When you’re on track with business personal property tax compliance, deciding on insurance is much easier. Avalara Property Tax is designed to simplify the property tax compliance process so you can focus on more important things. To find out if Avalara is right for your business, schedule a call today.