Hazard insurance for your business: Why do you need it?

Your hard work has paid off. Whether you run a successful restaurant, a lively daycare center, or a local five-star business, you know that the right insurance policies are essential for your company (and your security).

Perhaps you arrived here because you were notified that you require hazard coverage for your business. Don’t worry. This important coverage may already be in place.

You can also get the coverages you need for business hazard insurance if your company doesn’t have it.

These are the most common questions you will encounter.


  • What is Business Hazard Insurance?
  • What does hazard coverage cover?
  • Does SBA require that you have hazard insurance?
  • Why is SBA asking for hazard coverage?
  • Does my company need hazard coverage?
  • What does hazard insurance do for a business?

What is hazard insurance?

You can protect your business against financial loss by purchasing hazard insurance. It covers damages to your property or building due to certain covered hazards, such as fires, vandalism, and other events.

This type of insurance is often included under coverages. Also known as business insurance or property insurance, this type of insurance can be added to your coverages. However, your property insurance may only cover certain hazards that your business might be exposed to in your region. We now move on to the next question.

What does hazard insurance cover?

Small business owners often purchase hazard insurance to cover damages, losses, and replacement costs for the following:

  • Theft
  • Fire
  • Wind
  • Power Outages
  • Weather-related natural events, such as storms and snow, or lightning
  • Explosions
  • Vandalism or rioting

But not all hazard types are covered by a standard business property policy. Certain exclusions are possible. You can’t cover it if it’s not included in your policy or it’s exempt.

Additional coverage is available for business hazards, such as flood insurance, terrorist attacks, or earthquakes.

We cannot stress this enough: To be considered a covered incident, the hazardous event must be identified in your policy. You should review your coverages with an agent or your insurance company to ensure you have the right coverages for your small business.

Let’s say, for instance, that your business is located within an older building in a historic part of town that has regular water and sewer problems. In reality, the majority of commercial buildings along your street have suffered from a city-related sewer problem in the last 15 year. Imagine that your business property insurance doesn’t cover sewer problems. You will need to buy additional hazard coverage from your insurance company in order to cover any damages, losses, or replacement costs resulting from plumbing or sewer incidents.

Is hazard insurance required by the SBA?

You will need to have business insurance in order to get an SBA Loan. SBA requires you to have hazard coverage in place when you apply for an SBA loan.

Remember that you may already have the coverage required under your business insurance policy. You might need to add additional location-related coverages (such as flood insurance coverage) within 12 months of loan approval.

SBA Loan Insurance Requirements

The requirements for the SBA vary depending on business type and loan amount. However, these are the minimum coverages required. You’ll find a guide in the next section to help you figure out which policies you will need to have.

Property Insurance

It is likely that you will need some type of property insurance, depending on the type and value of your business’s assets. If your company owns “real property,” you may use it as collateral for the loan if your business owns real property (a.k.a. In such cases, you will need replacement coverage to cover various perils, including hail, earthquakes, floods, and wind. Even if you don’t have real estate, every company will require coverage for personal business properties or BPP at full replacement costs. You can get property insurance through a Standard Package or an Owners’ policy (BOP).

General Liability Insurance

General Liability Insurance (GL) is required for all SBA loans. The good news about General Liability is that it can be found in any Standard Package or BOP policy. Depending on how much General Liability is required, it might be less expensive to buy a BOP/Standard package policy with lower limits. You can also add an umbrella liability insurance policy to increase the General Liability Insurance limits. 

Product Liability Insurance

SBA might require product liability insurance for businesses that sell products. If you have had a contract with any distributors or retailers in the past, your business will most likely already have Product Liability Insurance. This coverage is essential for any business that sells products. While Product Liability may be sold as a separate policy, it will usually be included in your General Liability policy. Pricing will depend on what it is you sell and how many of it you have.

Professional Liability Insurance

Suppose your company offers services (e.g., consulting, engineering, design, etc. You will need to have a policy for professional liability or errors & omissions (E&O). It is easy to find Professional Liability policies and can often tailor to your industry. The services you provide will determine the pricing.

Liquor Liability

The Coronavirus pandemic has impacted the hospitality sector. SBA loans are available under the CARES Act for bars, restaurants, and concert halls that were closed. You will need liquor liability insurance if you own one of these establishments that serves alcohol. This coverage can be purchased separately or as an extension of General Liability.

Workers’ Compensation

You must carry Workers’ Comp Insurance if you have employees, with a few exceptions. SBA will require that you have coverage that meets or exceeds your state’s requirements. Workers’ compensation is easily accessible and can sometimes be provided by your payroll provider. Only a handful of states (OH. WA. SD., and WY) require that you purchase Workers’ Compensation through their state’s insurance marketplace.

Life Insurance

One common question that small businesses have is: Do you need life insurance to qualify for an SBA loan? The short answer is likely. The SBA almost always requires what is often called “Key-Person Life Insurance.” If anything happens to the founder or managers of your company, this policy will pay with the SBA being a beneficiary. The SBA needs life insurance to protect itself against untimely death or the possibility of the loan being repaid.

The SBA Insurance Requirements Broken Down

Here is a guideline to help you determine what type of business insurance your company will need. Your lender will give you more details when you apply. 


  • General Liability Insurance Limits can vary by business
  • Property Insurance Total Replacement Cost. Must have a Lender’s Gains Payable Clause’ to favor the lender (SBA).
  • Life Insurance Limits are based on the amount of collateral.

If you have EMPLOYEES:

  • Workers’ Compensation Minimum meeting the statutory Limits

If you have a REAL ESTATE:

  • Property Insurance- A ‘Mortgagee Clause” must be included in favor of the lender (SBA).


  • Product Liability Insurance Limits differ by product.

If you provide a SERVICE:

  • Professional Insurance is Sometimes referred to as ‘Errors & Omissions(E&O), or Malpractice insurance.

If you are a seller of ALCOHOL:

  • Liquor Liability Insurance These are often sold as part of your General Liability Insurance Policy.

Other Possible Requirements

  • Flood Insurance You may need additional requirements if your business is in a flood hazard zone.
  • Hazard Insurance – When loan proceeds are used to finance new or existing improvements on a leasehold land interest, the lease must contain either Assignee’s (SBA’s) right to hazard funds resulting from damage to improvements.
  • Marine Insurance A vessel may be collateral for a loan. You will need coverage to cover the full insured value.

How much does hazard insurance cost?

The cost of a business hazard policy varies. Every business policy covers a different type of property. The cost depends on the amount of coverage chosen, coverages selected, the deductible you choose, any additional add-ons purchased, and much more. You can determine what you’d have to pay in less than 5 minutes.

Do I need hazard coverage for my business?

Yes. Hazard insurance is essential for nearly every business, and you will need it to obtain certain types of funding, such as SBA loans, COVID-19 EIDL loans, and other financing options.

Also, you need to make sure that your hazard insurance covers are adequate to cover all of your hard work and provide funding.

Imagine that you’re launching a restaurant. You carefully selected high-end decor so customers can enjoy a stylish and modern environment. In this case, you need to make sure that the property can be replaced if damaged in a cooking fire.

You may not need to have a separate policy for hazard coverage if you operate your business as a sole proprietorship from home and have very little business property (such as your computer) to insure. For more information, you should consult your insurance company.


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