You’ve probably found this particular corner of the internet because you either have recently applied for an Economic Injury Disaster Loan through the Small Business Administration or are thinking about applying.
If so, you might be facing a problem with hazard insurance.
You may have the coverage that you need under your commercial insurance policy. If not, there are steps you can take.
Let’s discuss hazard insurance, look at some scenarios for business insurance, and then figure out how to get your loan secured.
What is hazard insurance exactly?
Simply stated, hazard insurance covers physical damage to your house or business due to covered perils or “hazards.”
The truth is that “hazard insurance” can only be used to describe coverage in other types of insurance policies, which you likely already have.
You are protected from many hazards by your property insurance. This is what hazard coverage actually looks like. Each of these scenarios are subject to the limitations and exclusions in your insurance policy. They also have to be subject to your deductible review and approval by an adjuster.
What does Hazard insurance cover?
Hazard insurance covers the property against catastrophic damage and hazards, as the name implies. These events could include, but not be limited to:
Storm damage: Hazard insurance covers most storm-related damages, including hail, rain, hail, hurricanes and tornadoes. It must be a sudden, and not gradual, cause. Rain damage caused by a hole in the ceiling from a tree falling through it, for example, would be covered. Rain damage caused by a gradual leak that you may have closed up many months ago will not be covered. Flood damage from rain is not covered. (Hint, you will need separate flood insurance.
Theft: After you file a report, your insurance will cover you to replace the property that was stolen from you (inside or outside).
Fire damage: Hazard insurance will pay for the costs of any fire that damages your property.
Unintentional or sudden discharge: Hazard insurance covers water damage caused by a burst pipe or a ruptured water heater, as well as water machine or dishwasher failure. The policy will cover the damage but not the cost of replacing the damaged water heater, washing machine or dishwasher.
Water overflow: If water from a blocked toilet or sink causes damage, it will be covered under hazard insurance.
Water backup and sewer backup (available at an extra cost): While not included in your hazard coverage, water backup coverage is available for an additional fee. If a pipe, drain or sewer line backs up, this insurance will protect you. This coverage is not the same as the “overflow” coverage because the backup happens deeper in the plumbing system than the drain.
Service Line coverage: This optional coverage pays for the repair of any pipes or wires that are damaged (e.g. power lines, water pipes) entering your property.
Equipment breakdown coverage available at an additional charge: This optional coverage covers damage to your property due to forces such as electrical shorts or power surges.
Can you get Hazard Insurance if you don’t own the property?
Technically, no. However, renters’ insurance will protect you from hazards. It sounds confusing but it’s because homeowners insurance is not available for your property. You can only get homeowners insurance for that property. My friend was required to prove proof of her insurance coverage for her business assets (computers and documents, printers etc.) by the SBA. From hazardous events. If you have the right policy, renters insurance will cover you.
Perhaps you already have hazard insurance.
Now that you’re familiar with what hazard Insurance is, you may think, “Yikes, but I do really need these things covered!”
It’s not so quick.
Hazard insurance, as we have mentioned, is simply a term that describes a coverage that is part of a range of property coverages.
If any type of business property insurance is in force, you probably are already covered.
Commercial property insurance
You may already have a commercial insurance policy for your business property. This is called hazard insurance.
Commercial property insurance covers your company’s tangible assets, such as buildings, furniture, equipment, supplies, computers and inventory. It also protects customer goods, signs, fencing and income loss.
This article will explain what you get in commercial property insurance.
Does personal insurance count?
You may not be eligible for commercial property insurance if you are a sole proprietor of a house, condo or apartment and don’t have much business property.
You might be wondering if your hazard insurance policy on your condo/renters/home is adequate.
The Massachusetts SBA does not allow personal hazard insurance to qualify for the SBA loan. They do not allow business auto insurance to even be considered.
To save money, you will need separate coverage for your business property.
You should contact your SBA Disaster contact if you don’t have a policy or a policy with sufficient limits. They will be able to help you.
You can reach out to them at [email protected] with any inquiries.
But are you sure that you have enough hazard insurance?
The SBA requires that your hazard coverage be at least 80% of the loan amount.
We recommend that you insure 100% of your business property with hazard insurance. This is because, in the event of a total loss, you will want to be able to replace all your business property.
Why does the SBA require Hazard Insurance for EIDL Loans?
The Small Business Administration can be considered a lender. The SBA works just like other lenders to ensure that their collateral is protected from unforeseeable circumstances. The Small Business Administration requires that all borrowers obtain hazard insurance within twelve months of being approved for a loan. This applies to all Economic Injury Disaster Loans. All borrowers must also maintain coverage for the entire loan term.
We have been researching this loan requirement since it first came up. These are some other rules that we learned from the SBA.
- Insurance must be in the business’s name and must provide proof of business property.
- If a sole proprietor is listed as a DBA, they must include the DBA on the policy.
What if my business is home-based?
A homeowners policy is required if your business is located at home and you are the owner of your home. Your insurance company should add your business name to your policy. Renter’s insurance policies should provide the same coverage for hazards if you lease the property you live on and operate a business from it. It is clearly shown that the SBA representative wants the insured’s policy to cover at least 80% of her business assets. Make sure to let your insurance company know the exact amount of coverage you require to meet your loan requirements. Also, make sure they are open to including the name of your company on your renters or homeowners insurance policies. If they refuse to cover your business under the existing policy, it is time to switch providers. Or you can get separate business property insurance (BPI).
Commercial Property Insurance
Also called business property insurance (BPI), it protects your company’s commercial buildings and other assets. These types of insurance policies are for businesses that operate out of commercial buildings. However, some companies will issue a BPI to you even if your company is home-based. A commercial property policy usually offers more coverage than homeowners insurance. There is a good possibility that you have commercial property insurance. This will likely more than meet the requirements of the SBA. You may have had to obtain commercial property insurance if you own a brick-and-mortar business to meet local regulations.
The Cost of Hazard Insurance
You will have to pay different premiums for hazard insurance. These will depend on the coverage you select and the limits you choose. The state in which you live is one of the most important cost factors for hazard coverage. Florida and Texas are two of the most costly states for hazard insurance. This is because they have more natural disasters that can cause property damage, such as tornadoes and hurricanes. If you’re a homeowner, there is a simple formula that will give you an estimate of the cost of hazard insurance. Multiply your home’s purchase price by 0.23%-0.33% to get an estimate of the cost of hazard insurance. I have good news for renters who only need renters insurance. According to the Insurance Information Institute, the average renter’s insurance cost in the United States is $15 per month.
Where can I find affordable Hazard insurance to meet my EIDL requirements?
Comparing rates is the best way to find a great deal for hazard insurance. Comparing quotes from various providers can help you save time and money when searching for the right policy.
If you have a brick-and-mortar business, you probably already have hazard coverage. You don’t need to get hazard insurance if you own a home-based company like my friend. It is often not an extra cost to include your business name on your policy.