No matter how safe you believe your business is, it’s still vulnerable to a number of different threats at any time. Without the right protection in place, your small business could face serious losses or even bankruptcy. That’s why adding small business hazard insurance is critical to your company’s success.
Small-business hazard insurance covers the cost of repairing or replacing property that is damaged or destroyed in an accident. It’s sometimes used as another name for business property insurance.
Business hazard insurance protects property from natural disasters such as hail, fire, severe storms, and other catastrophes. Each specific peril must be included in the policy for there to be coverage and compensation for a loss.
The hazard insurance portion of property insurance typically includes coverage for property damage from:
So when would you need a separate hazard insurance policy? Perils such as flooding, earthquakes, acts of terror, nuclear attacks, or damage from war are often excluded and require separate insurance policies. If you are in an area prone to these disasters you’ll want to consider that coverage.
Almost every type of business needs hazard insurance. In fact, as mentioned before, it’s required to secure certain types of funding, including SBA loans or COVID-19 EIDL loans. And you definitely want the right hazard insurance coverage in place to protect your hard work, not just to secure funding.
Many states don’t require business owners to carry hazard insurance. But, it’s still a good idea to have this coverage to help protect your business’ property. Without it, you’d have to pay out of pocket for repair or replacement costs.
Business hazard insurance costs a median of $63 per month. That’s for a policy with a $60,000 limit and a median deductible of $1,000.
The cost of business hazard insurance will differ for every business.
Here are some variables that can affect your costs:
The more property you have to insure, the more coverage will cost. As your business grows, make sure to adjust your insurance coverage accordingly.
Insurance companies use two different methods to determine the value of your property:
Replacement value coverage: The insurance company will pay out to help you purchase a new version of the damaged property.
Actual cash value coverage: The insurance company will reimburse you for the value of the item before it was damaged.
The actual cash value of an item is usually less than the replacement cost because assets depreciate over time. For that reason, actual cash value coverage is usually cheaper than replacement value coverage.
In some cases, a lender may require you to have insurance that covers a certain amount of your property. For EIDL financing, for instance, you may need business hazard insurance that covers 80% of the value of your property.
Keep in mind that hazard insurance can also refer to part of a homeowners insurance policy. In this case, hazard insurance is a portion of the policy that covers only the structure itself. This may also be called dwelling coverage.
If you need insurance coverage for your home-based business, your homeowners insurance policy may not be sufficient. A standard homeowners insurance policy only covers business property worth about $2,500, according to the Insurance Information Institute.
You may be able to add an endorsement to your homeowners insurance policy to protect your business property. Otherwise, consider purchasing business property insurance or a business owner’s policy, which typically includes general liability insurance, property insurance and business interruption insurance.
Yes, when you apply for an SBA loan, you will be required to provide proof of hazard insurance. The SBA, like all other lenders, wants proof that your business and business assets are protected. In some cases, you may have up to 12 months to acquire hazard insurance, but many lenders that partner with the SBA will want to see proof of insurance upfront.
Regulating Agency and References
Insurance Information Institute (III)
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