Top 4 Coverage Traps to Avoid in Commercial Property Insurance Policies

Home » Blog » Top 4 Coverage Traps to Avoid in Commercial Property Insurance Policies



When you consider purchasing commercial property insurance, there are a few sneaky traps that should be avoided. We’ll explain what each of these are and why you should be wary of them below. These are the four most common traps.

Ordinance or Law

Ordinance or Law coverage is often something that is overlooked. Essentially, it means that when your property becomes older, there may be changes in terms of the ordinance and codes related to re-construction. If your property has a loss, compliance with the latest building codes may require an increase in reconstruction costs. If this isn’t covered by your insurance, you may be in a situation where the additional costs are not covered by the insurance policy. If your building is more than 5-10 years old, we recommend purchasing this additional coverage.


Coinsurance is something many people with commercial property have heard of but may not entirely understand. One of the most common coinsurance clauses is 80%, but what does that mean? It means that the policyholder must have an amount of insurance that corresponds to 80% of the insurable value of the property. If this is carried, claims will be paid up to your policy limits at the full valuation. However, if you have less, that means you may only get a small portion of your actual loss. The best way to buy commercial property insurance is to insure at full value and if possible, get the carrier to waive coinsurance (i.e. “Agreed Value”).

Valuation Method

The valuation method refers to how it is established that your insured property will be valued when a loss occurs. This can be Actual Cash Value or it might be Replacement Cost coverage. With the former, the amount is the depreciated value of the property based on its useful life. If you purchase Replacement Cost valuation in your commercial property policy, that means the full cost to replace with “like kind and quality” will be covered. Our agency recommends Replacement Cost.

Causes of Loss

Always pay attention to the causes of loss offered by your insurance company on your commercial property. If you end up having property damaged by something that isn’t covered, your policy may deny coverage. Some of the most common causes of loss that aren’t covered are earthquakes and floods. Consider the wording here carefully and make sure you aren’t putting yourself in a bad situation. The broadest “Cause of Loss” option available in commercial property insurance is called “Special Form”.

Looking for commercial property insurance? Shield Insurance is here to help you get the coverage you need. You can learn more or ask any questions you might have at


Understanding Coinsurance

Posted on