Property & BI

Property insurance

~5 min read

Category: Property insurance · Reviewed by the Apex broking team · Last reviewed 2026-08-21

In short: Property insurance covers physical loss of or damage to tangible property — buildings, contents, stock, plant and machinery. In UK commercial insurance it is usually not a standalone policy but the property damage (or material damage) section of a commercial combined or package policy, sitting alongside business interruption, liability and money sections. In personal lines the same phrase describes household buildings and contents cover, which is a narrower and more standardised product.

Category: Property insurance Also known as: property damage insurance, material damage insurance, commercial property cover Related concepts: buildings insurance, contents insurance, business interruption insurance

Definition

Property insurance is cover against physical loss or damage to property owned by, or the responsibility of, the insured. For a business the property in question is typically the premises, the fixtures and fittings, office equipment and computers, plant and machinery, and stock or raw materials. The policy pays to repair, replace or reinstate what has been damaged, subject to the sums insured, the perils covered and the settlement basis agreed at inception.

The important structural point for commercial buyers is that “property insurance” is rarely a document in its own right. It is a section. A commercial combined policy will carry a property damage section, and the wording, sums insured and excesses in that section govern everything physical. Understanding that architecture matters, because several other sections — most obviously business interruption — are triggered by damage that the property section accepts as insured.

What the property damage section covers

Cover is written either on a named perils basis or on an all risks basis. Named perils cover responds only to the events listed — typically fire, lightning, explosion, aircraft, storm, flood, escape of water, impact, riot and malicious damage, and theft involving forcible entry. All risks cover responds to accidental loss or damage from any cause that is not excluded, which is broader and shifts the argument onto the exclusions rather than the insuring clause.

Both forms carry standard exclusions that businesses regularly misjudge: wear and tear and gradual deterioration, faulty workmanship or design in the damaged item itself, damage caused by the property's own inherent defect, and, depending on the wording, unoccupied premises beyond a stated period. Terrorism is normally excluded and bought back separately. Subsidence, heave and landslip may be included, excluded or offered as an option, and this is a common point of difference between quotations.

Buildings, contents and stock

The property section divides the risk into headings, each with its own sum insured. Buildings covers the structure, its permanent fixtures, and usually the outbuildings, walls, gates and yard surfaces. Contents covers the movable property inside — furniture, office equipment, tenant's improvements, tools. Stock is separated out because its value moves seasonally and it is normally settled at cost price rather than replacement cost. Plant and machinery may be listed separately again where individual items are significant.

Getting the split right matters more than it appears. A tenant who insures “contents” but has spent heavily on shopfitting may find those improvements were the landlord's buildings interest, or may find nobody insured them at all. Under most commercial leases the landlord insures the building and recharges the premium, and the tenant insures contents, stock and improvements — but the lease, not the policy, decides where the line falls, and the lease should be read before the schedule is written.

Sums insured, average and settlement basis

Commercial property sums insured are exposed to average. If the sum insured is less than the true value at risk, the insurer may reduce the settlement in the same proportion, so a building insured for half its reinstatement cost can attract half payment on a partial loss, not just on a total one. Underinsurance is the most common avoidable defect we see on incoming commercial property programmes, and it usually arises from figures that were never revisited rather than figures that were deliberately understated.

Settlement is normally on a reinstatement basis: new for old, without deduction for wear and tear, provided reinstatement actually takes place. Indemnity settlement, which deducts for age and condition, applies where reinstatement is not carried out or where the policy is written on that basis. Buildings sums insured should be based on a proper reinstatement cost assessment — rebuilding cost including demolition, site clearance and professional fees — not on market value, which reflects land and location and is frequently far lower or far higher than the cost of rebuilding.

Where the personal-lines meaning differs

In household insurance, “property insurance” usually means buildings and contents cover sold as a package to a homeowner. The perils, the settlement basis and the concept of average are recognisably the same, but the product is standardised, the sums insured are often set on a bedroom-rated or sum-insured-unlimited basis, and there are statutory and market structures — notably Flood Re — that exist only on the household side. Commercial property risks are individually underwritten, and the wording differences between insurers are material.

Apex is a commercial broker. Where this wiki refers to property insurance without qualification, it means the commercial property damage section.

Why it matters

Property damage is the section on which the rest of a commercial programme depends. Business interruption is normally triggered by damage the property section accepts. Contract conditions, leases and lender requirements are usually expressed in property terms. And because property sums insured are the ones most exposed to average, they are where a policy that looks adequate on the schedule quietly stops being adequate in practice. Reviewing them properly is an annual job, not a renewal formality.

Frequently asked questions

Is property insurance the same as buildings insurance?

No. Buildings insurance is one heading within property insurance. A commercial property damage section will normally carry separate sums insured for buildings, contents, stock and sometimes plant and machinery, each with its own basis of settlement. Buildings is the structure and its permanent fixtures; the other headings cover what is inside.

Should a commercial property sum insured be based on market value?

No. It should be based on the reinstatement cost — what it would cost to rebuild, including demolition, site clearance and professional fees, and allowing for building regulations and any listed-building requirements. Market value reflects land and location and is a different figure altogether.

What does average mean on a property policy?

Average is the condition allowing an insurer to reduce a claim payment in proportion to any underinsurance. If a property is insured for 60% of its true value, a partial-loss settlement can be reduced to 60% of the loss. It applies to partial losses, not only total ones, which is why underinsurance is so damaging.

Does a commercial tenant need property insurance?

Usually yes, but for a narrower set of headings. Most commercial leases oblige the landlord to insure the building and recharge the premium, leaving the tenant to insure contents, stock, and any improvements or shopfitting it has paid for. The lease determines the split, so it should be read before the policy is arranged.

Related entries

Is your property sum insured still the right number?

Underinsurance is the most common defect we find on incoming commercial property programmes. Bristol-based, FCA-regulated, wordings first.

Call 0117 325 0027 info@apexinsurancebrokers.co.uk

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.

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