What Does Business Hazard Insurance Cover & Why Does the SBA Require It?

You have successfully set up a thriving business in the center of the town. You have huge patronages and lots of revenue is coming in. Then out of the blues, a fire outbreak happened and your business insurance company couldn’t cover it.

Typically, traditional business insurance doesn’t cover hazard-induced damages. A specific type of coverage is needed. In this article, you will find out what business hazard insurance cover.

What is Business Insurance for Small Businesses?

This is a type of insurance policy that covers damages to small business structures from different hazardous circumstances. You can consider this to be hazard-specific insurance for small businesses at the risk of certain hazards.

What Does Hazard Insurance Include?

Your small business needs to know what hazard insurance covers so it can be better prepared for what it offers.

Here are some of the common hazards covered with the hazard insurance:

  • Fire outbreak
  • Theft/burglary
  • Civil unrests/riots
  • Natural disasters, such as lightning, hailstones, snow and storms, wind, and ice.
  • Sprinkler leakage
  • Wind
  • Explosions
  • Building collapse
  • Power surges

Why Do I Pay Hazard Insurance?

You need to learn what business hazard insurance cover and use it to protect your business premises. The cost of replacing damaged items following a hailstone, wind, or civil unrest can be expensive.

By purchasing the business hazard insurance policy and paying the premium, you will be able to save costs. Your insurance company will take over the settlement if others were hurt and replace the damaged business contents.

What is Hazard Insurance for Business Contents and How Does It Work?

The business hazard insurance policy covers your business structures and the contents inside from hazard-induced damages. If your business properties are vandalized, stolen, or damaged during civil unrest, your insurer will either repair or replace them.

The possibility of doing that is based on two important factors. These are the replacement value and actual cash value

Replacement Value refers to the amount of money the insurance company pays you to repair or repurchase the damaged business contents. In this case, the insurer doesn’t make any deductions in terms of the depreciated price or cost of those items.

The Actual Cash Value or ACV refers to the amount of money paid for the damaged business contents minus the depreciated prices. For example, if your business furniture is worth $5,000 at the time of purchase, the insurance company may pay you $3,500 as ACV. This means that the insurer has factored in the depreciated value of the furniture at the time it was damaged or vandalized.

Why Does the SBA Require Business Hazard Insurance?

Do you want to obtain a loan for your small business? Typical funding sources include family members, friends, business associates, and in most cases – the SBA. The SBA means Small Business Association. It is a business financing association that overlooks the funding and operations of small and medium-scale businesses.

As a small business owner, you need to have business hazard insurance before you can get an SBA loan. It is one of the core requirements. Without it, your SBA loan may not be approved.

But why would the SBA require small business owners to have business hazard insurance before approving a loan?

Here are some of the reasons why this is tenable:

1.    Qualification for EIDL and PPP

Having the business hazard insurance is more like your “passport” to accessing other credit facilities through the SBA. These include:

  • Economic Injury Disaster Loan (EIDL)
  • Paycheck Protection Program (PPP)

2.    Prove Readiness to Protect the Business

The SBA requires the business hazard insurance because it considers that to be the business owner’s proof of protecting the business.

The association wants you to make concerted efforts to protect your enterprise from several hazardous conditions.

How Much Should Hazard Insurance Cost?

The cost of purchasing a business insurance policy can sometimes be “scary.” Some business owners working on a budget may be unable to afford these costs.

So, how much will it likely cost to purchase the business hazard insurance policy? The cost is quite relative, as different insurance companies have different quotes for it.

However, you want to have some things in mind. These factors can impact how much you pay for business hazard insurance:

1.    How Much is the Business Hazard Insurance Premium?

Premium is the amount of money paid to keep an insurance policy active. How much are you expected to pay to keep your business hazard insurance active?

The premium depends on the type of settlement you expect. For example, an Actual Cash Value (ACV) attracts lower premiums. Replacement Cost has a higher premium.

Take the time to understand how the two work and which has more potential when claiming business hazard insurance.

2.    How Old is Your Business Property?

How long have you been using the property for your business operations? Older properties attract higher premiums.

You can reduce the amount paid for the property’s age by:

  • Installing a security system
  • Renovating the property when it is due.
  • Making fewer claims

3.    How Much is Your Business Property?

What is the value of your business property? High-end business properties may be required to pay a higher premium because of the expensive costs of making repairs or replacing business contents.

What Does the Business Hazard Insurance Not Cover?

Your business hazard insurance may not cover every aspect of your business and its contents. Special insurance policies need to be purchased if you intend to achieve full coverage for your property.

The coverage doesn’t cover businesses that are located in high-risk areas. By high risks, we mean locations that are prone to flooding, terrorism, and earthquake.

If your business and its properties are located in such areas, consider buying additional coverages. Examples of insurance policies to purchase as an add-on are:

  • Terrorism insurance coverage
  • Flood insurance policy to protect your business properties from a hurricane and other forms of flooding.
  • Earthquake insurance policy

Business Hazard Insurance Covers Your Business Properties & Contents

Purchase a business hazard insurance to protect your business structures (buildings and associated properties), as well as the contents. Don’t forget to compare your options and pick the insurance company that offers more coverage options at affordable premiums.


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