Hazard Insurance for Small Businesses: Everything You Need To Know

Whether you own the thriving childcare center, the best restaurant in town, or a five-star local carpentry company, you put a lot of effort into the small business you’ve developed. Therefore, you are personally aware of how important it is for your company to have the proper insurance coverage.

Don’t worry if you are here because you were informed that your company needs hazard insurance. This crucial protection may already be in place. It’s also fairly easy to acquire the business hazard insurance coverages you require if you don’t already have them.

These FAQs are addressed in this guide:

  • What is business hazard insurance?
  • What is covered under hazard insurance?
  • Is hazard insurance required by the SBA?
  • Why is hazard insurance required by the SBA?
  • Do I need hazard insurance for my business?
  • What does hazard insurance do for businesses?

What is Business Hazard Insurance?

Hazard insurance is a crucial form of protection that can shield your company from financial losses in the event that certain insured hazardous circumstances, such as certain weather-related occurrences, fires, vandalism, and more, cause damage to your building or other commercial property.

This kind of insurance, often known as business property insurance or commercial property insurance, is frequently incorporated into other coverages. However, not all local risks your company faces may be covered by your commercial property insurance. This leads to the next question.

What is Covered Under Hazard Insurance?

Hazard insurance for small enterprises often pays for harms, losses, or expenses associated with:

  • theft, fire, and power blackouts
  • natural catastrophes brought on by the weather, such as storms, snow, or lightning
  • Explosions
  • riots or looting

However, a typical company property insurance coverage does not cover all potential risks. In other words, there are some exclusions. Remember, if it is not explicitly stated in your policy, it is not covered.

Therefore, always include it in your policy if you require additional protection against risks unique to your industry, such as earthquakes, terrorist attacks,  sewer or water backups, flood insurance, equipment failure brought on by human error, or anything else.

We cannot emphasize this enough: For the hazardous incident to be a covered event, it must be specified in your policy. To ensure you have the coverage your small business needs in place, it’s crucial to frequently evaluate your policies with your insurance provider or agent.

For example, suppose your company is housed in an aging structure in a prominent neighborhood in your town that experiences frequent sewer and water issues. Further, imagine that over the past 15 years, the majority of the business buildings on your block have encountered some form of city-related sewer issue. Let’s say your commercial property insurance does not cover sewer issues. If this is the case, your insurance provider will require you to acquire supplemental hazard insurance to pay for losses, damages, or replacement expenses brought on by sewage or plumbing issues.

Is Hazard Insurance Required by the SBA?

Yes, business hazard insurance is required for an SBA loan. Because of many possible disaster circumstances, you must have hazard insurance in place if you’re applying for a loan from the Small Business Administration (SBA), including an Economic Injury Disaster Loan (EIDL).

Nevertheless, keep in mind that your commercial property insurance policy may already provide the necessary protection. However, obtaining additional location-specific add-on coverages (like flood insurance coverage) might be necessary within a year of your loan being approved.

Why is Hazard Insurance Coverage Required by the SBA?

To safeguard you and your company (if you’re a borrower of an SBA or EIDL loan) and to lessen the risk that the lender assumes in extending a loan to your company, the SBA mandates that certain business insurances be in place.

In essence, the SBA can offer cheaper interest rate loans to business owners when it requires you to have certain insurance coverage in place to have an EIDL or SBA loan. This is because the risk on the part of the lending agency is minimized. As a result, small business owners throughout the country will benefit from this.

Additionally, before issuing a loan, other lenders could also demand that a business have specific insurance coverages in place. 

What Additional Kind of Insurance Does a Small Business Require?

The kinds of business insurance that your company needs will entirely depend on what it does, where it is located, and how it runs. However, there are a few common business insurance plans you might consider.

  1. Workers’ compensation insurance: If you have even one employee, most states require you to get workers’ comp insurance (and you can be penalized for not having it). 
  1. General liability insurance: This safeguards you in the event that a customer brings a lawsuit against your company for physical harm or property damage.
  1. A BOP is a business owner’s policy: This is a collection of the most essential small business insurance policies (including a combination of coverages listed here).
  1. Commercial property insurance: This is also known as business property insurance and frequently includes fundamental hazard coverages. It safeguards both the building and the things inside it.
  1. Professional liability insurance: If you make a mistake that hurts a client, this policy can help to protect you.
  1. Commercial auto insurance: This is required if you drive a company vehicle.

What is the price of hazard insurance?

A business’s cost for a hazard insurance policy varies. Every business property insurance is different and depends on a variety of factors, including the deductible amount you decide, the coverages you need, the coverage levels you choose, additional add-on coverages, and more. 

Do I need hazard insurance for my business?

Yes. Almost all business types require hazard insurance. In fact, as was previously said, it is necessary to obtain some forms of capital, such as SBA loans or  EIDL loans. Additionally, to secure money, you must have the appropriate hazard insurance coverage to safeguard your business and the hard work you have put into it.

Suppose you start a restaurant and carefully invest in high-end furnishings to provide clients with a lively and trendy atmosphere. In that case, you’ll want to ensure that you have the resources to replace that property if a kitchen fire damages it.

However, in some jurisdictions, you might not require a separate hazard insurance policy if you operate your business as a sole proprietorship from your home office and just have a small amount of commercial property to insure (such as your computer). Therefore, you must contact your insurance provider to find out if you need separate coverage.

Conclusions: What is the Purpose of Business Hazard Insurance?

Hazard insurance is designed to shield your company’s building or property, whether it is owned or rented, from losses or damages brought on by specific dangerous situations. Additionally, as was already said, having enough hazard insurance in place can aid in your ability to obtain financing.

Every small business owner is aware that operating their company carries some financial risk. However, having the right coverage alternatives in place can help reduce some of that risk. As a result, you’ll be able to concentrate on managing and expanding your company while maintaining a healthy peace of mind.

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