Because of climate change, weather-related disasters are becoming more frequent in the U.S. In 2021, for instance, the nation faced 20 such disasters, incurring about $145 billion in economic losses, which is about three times the National Oceanic and Atmospheric Administration (NOAA) annual average since 1980. Besides natural disasters, businesses also face non-climate-related risks such as theft and fire. All such risk exposures make hazard insurance vital for your business.
Hazard insurance is a portion of commercial property insurance that pays for the financial losses associated with property damage. Specifically, it covers the cost of repairing or replacing belongings such as tools and equipment, computers, furniture, and inventory. It also covers the cost of rebuilding damaged structures. Typical named perils include fire, vandalism, theft, lightning, wind, and some natural disasters.
Although business hazard insurance is optional in most states, it is prudent to have it anyway because of the benefits it offers. For instance, with this insurance coverage, you will have peace of mind knowing that your business will be compensated in case of a disaster. Without it, you will have to pay for all the losses out of pocket, which will likely jeopardize your finances.
Business Hazard Insurance for SBA Loans
Hazard insurance may also be necessary to protect collateral property, particularly if you have a secured SBA loan. This coverage is specifically required for SBA loans obtained through the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). Usually, the Small Business Administration requires you to maintain adequate coverage for the collateral property throughout the loan period. SBA may require specific types of coverages depending on the hazards prevalent in your premises. For instance, if your business is located in a flood-prone area, you may have to purchase flood insurance to secure your collateral property from flood damage. Hazard insurance for SBA loans should meet the following conditions:
- Coverage must be equal to at least 80% of the loan amount
- You must provide proof of ownership of the collateral property
- Coverage should be obtained within one year of receiving an SBA loan
- You must list your business name in the policy
Is Business Hazard Insurance Required for a Home-Based Business?
Depending on the type of policy you have, homeowners insurance can provide some coverage for your business property if you run a home-based business. However, this coverage is limited, meaning you will likely have to pay out of pocket in case the damage caused surpasses the coverage limit. To be safe, you should purchase business hazard insurance as this will provide extra coverage for your home-based business.
Cost of Business Hazard Insurance
The cost of business hazard insurance varies depending on factors such as:
- Age of the property
- Amount of coverage
- Value of the property
Some of the strategies you can use to lower the cost of hazard insurance include comparing quotes from different insurance companies, mitigating property damage risks, relocating your premise to a safer zone, and conducting regular inspections and repairs.
If you need assistance with business insurance, contact the experts at Burton A. Harris Insurance Agency today. We are always ready to answer any questions you may have regarding your coverage.