The good news is that your business is likely already insured against hazards through your commercial property insurance policy. This guide explains what hazard insurance is and helps you determine if you have the right coverage for your business.
What is Business Hazard Insurance?
Business hazard insurance financially protects your commercial assets in the event of property damage. Hazard insurance, a term often used interchangeably with business property insurance or commercial property insurance, is the specific section of your policy that states what hazards or perils the carrier insures your property against. Each policy has some standard protections; however, you can purchase additional coverage if you need more than your policy provides.
What Does Hazard Insurance for Businesses Cover?
Business hazard insurance provides coverage for a range of common natural disasters or other loss events. The types of perils covered may include but are not limited to:
- Certain types of water damage
- Ice
- Earthquakes
- Lightning
- Fire
- Snow
- Flood
- Theft
- Hail
- Vandalism
It’s important to note that your hazard policy must specify a peril for it to be covered. In other words, if your policy doesn’t explicitly state that a hazard is covered, then it’s not. Read your policy carefully to ensure that you’re getting the coverage you need.
The two methods insurance companies use to assess property value are replacement value coverage and actual cash value coverage..
- Replacement value coverage: The company will pay the cost of replacing the destroyed or damaged property with like kind and quality, even if that requires updating the items with the newest version. This is also known as inflation protection coverage.
- Actual cash value coverage: The insurer will only reimburse the policy owner for the amount equal to the value of the property before the damage or destruction occurred. Inflation isn’t taken into account, and depreciation is used to determine the payout amount.
Should Small Businesses Have a Hazard Insurance Policy?
While it might not be a requirement for your small business to have hazard insurance, it’s still a good idea to invest in coverage. Natural disasters can strike at any time, or your business could be subject to another type of hazardous event. If such perils occur, business hazard insurance may serve as a lifeline to help you recover costs and continue operating your business. Business hazard insurance also gives you the peace of mind that your commercial assets are protected in the event of unforeseen circumstances.
Rented properties should also carry business hazard insurance. Your landlord has property insurance for the entire building; however, you should have hazard insurance to protect your business’s contents, including equipment and inventory.
If you operate a home-based business, your homeowners insurance policy may not offer sufficient coverage for your business. On average, homeowners insurance policies only cover $2,500 worth of business equipment or merchandise, so you may need to take out additional coverage if you have a substantial amount of physical commercial assets located in your home.
Do You Need Hazard Insurance for An SBA Loan?
Yes, you need hazard insurance for an SBA loan. The SBA requires all property used as collateral for a loan to carry business hazard insurance. Having the collateral covered by hazard insurance ensures the lender protects its investment in your business. You also need to show proof of hazard insurance if you apply for an Economic Injury Disaster Loan through the SBA. In order to remain compliant, coverage on all insured assets cannot lapse unless the assets have been sold or have significantly depreciated in value.
How Much Does Small Business Hazard Insurance Cost?
As with almost all types of insurance, the cost of hazard insurance varies based on a number of factors, including the size, location, and type of business. The median price indicates that you can expect to pay around $755 annually, or $63 per month, for $60,000 in hazard insurance coverage with a $1,000 deductible. It’s also possible to save money by choosing a business owners policy, which consolidates hazard insurance with general liability insurance.
Where Can You Find Business Hazard Insurance?
Most insurance companies offer business hazard insurance. You should shop around and get quotes from multiple carriers to find the best rate.
As previously mentioned, it’s important to review your hazard insurance policy and contact your provider if you have any questions or concerns about your coverage.
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