There are typically two types of limits that appear in a commercial property policy: specific limits or blanket limits. This article aims to help differentiate the two.
In the interest of simplicity, we’ll assume that the properties cited in this article are insured on a replacement cost basis at 100% of its value meaning that no co-insurance* applies. Also, we’ll ignore deductibles.
Specific Limit
A specific limit is a limit of insurance that applies one particular type of direct damage Property.
In the event that the property is damaged by a covered peril (ie: fire, wind, vandalism, etc.) the specific limit is the most that the insurer will pay for the property.
Take this scenario for example. You own a commercial building and business personal property (BPP) at the same location. The cost to replace the building is $1 million while the cost to replace your BPP is $500,000. Having a specific limit would mean that you would have a maximum of $1 million for the building and $500,000 for the BPP.
Blanket Limit
A blanket limit is a bit more intricate. It can apply to more than one type of property at the same location or the same type of property at multiple locations. It can also apply to all types of properties at multiple locations. Basically, it is a single limit that applies to:
- More than one category of property
- More than one location
- Both
Let’s refer back to the previous scenario but insure the building and BPP under a property policy that includes a blanket limit. In this specific case, the policy will show a limit of $1.5 million (Building $1M + BPP $500,000) that applies to both the building and the BPP and will cover your building, personal property or both if they are damaged or destroyed by a covered peril.
Let’s try a different scenario. Remember, this is a blanket limit that can apply to multiple locations. Suppose you own two commercial buildings that are at separate locations.
Each building contains business personal property. In the event of damage by a covered peril, the cost to replace the property is:
Location # 1: $1 million for the building and $500,00 for the BPP
Location # 2: $1.5 million for the building and $700,00 for the BPP
If you decide to insure the property with blanket limits, you would have three options.
1. Separate Blanket Limits for Buildings and BPP
This option has a $2.5 million blanket limit ($1M + $1.5M) for the buildings and a $1.2 million blanket limit ($500,000 + $700,000) for the BPP. The building limit would apply to both buildings and the BPP limit will apply to BPP at both locations.
2. Separate Blanket Limit for Each Location
You could choose a blanket limit of $1.5 million for the building and BPP at location #1. A separate blanket limit of $2.2 million would apply to the building and BPP at location #2.
3. Single Blanket Limit for Both Locations
A third option is a single blanket limit of $3.7 million that applies to the buildings and BPP at both locations.
Additional Points
A few points I wanted to mention regarding blanket limits.
- Property coverage that includes a blanket limit tends to be more expensive than coverage based on specific limits.
- Coinsurance may apply if you insure your property for less than 100% of its value. Generally, a blanket limit is available only if you insure your property for at least 90% of its value.
- No matter what type of limit you choose, it will likely be subject to a deductible.
- It is possible that a property policy may include both blanket and specific limits. For instance, a blanket limit may apply to buildings while a specific limit applies to personal property.
*Coinsurance is the insurance-to-value requirement wherein the insurer stipulates that the insured must carry an amount of insurance equal to a specified percentage of the value of the property, whether that be Actual Cash Value or Replacement Cost.
