There is a good chance that you have hazard insurance as part of your homeowner’s insurance policy. If you run a small business, though, that business faces all the same hazards. Even worse, as the 20-plus billion-dollar natural disasters that happened across the nation in 2020 show, many of those disasters are beyond your control.
That is before you account for all the local natural disasters or the disasters that can happen inside your business. That’s why your small business insurance should also include hazard insurance.
Never considered small business hazard insurance before? Keep reading for our guide to everything you need to know about it.
What is Hazard Insurance?
Business hazard insurance is a way for you to protect your business from a range of natural and in-house disasters. It typically covers a variety of natural disasters, along with some non-natural property hazards that your business might face.
Hazard coverage policies spell out exactly what they cover and how much they cover. So, if it’s not specifically listed in the policy, you should not expect an insurance claim to cover that damage. If you maintain a commercial property insurance policy, you’ll find any covered hazards listed in it.
Types of Covered Hazards
Every insurance company will generate its own list of covered hazards, but there are some hazards that show up in most policies. Covered hazards you often see include:
- Snow, Ice, Lightning
- Power surges
Some policies will bundle things like snow, hail, and lightning together under the catchall term “storm damage.” Hazard insurance may cover some kinds of water damage as part of the storm coverage.
For example, let’s say a storm with high winds hurls an object through one of your windows. Heavy rains pour in through the window and cause water damage. Since the storm broke the window, the policy may well cover the water damages.
Types of Covered Property
For business owners, the primary concern is often as much about what property the policy covers as what disasters it covers. A good hazard policy will cover several types of property, such as:
- The building
- Personal property
Depending on the policy, it may also help you replace critical documents and even help you restore the landscaping.
Since this is insurance coverage, you should also expect your policy to include certain coverage exclusions. Let’s say you run a business in the Midwest. Hail and tornadoes happen in the Midwest on a regular basis.
Your insurance company will likely exclude tornado and hail damage from the policy precisely because they are likely where your un your business. If you live somewhere where flooding is common, you can expect the policy will exclude flooding.
Some states even regulate property insurance so that it won’t cover natural disasters in a basic policy. That doesn’t mean you cannot find insurance coverage for those hazards. It just means that you’ll need a separate policy for the disasters.
If you operate in Los Angeles, for example, you would likely need a standalone earthquake policy. If you operate a business on a beach, you’ll likely need a standalone flood policy or maybe a hurricane policy depending on where you live.
Don’t forget that insurance companies will sometimes deny claims for improper filing, even if the damage is covered. If you want to know more about that, check it out here.
Is Hazard Insurance Mandatory?
Different states impose different rules in regard to insurance for businesses. If your state requires business insurance, it’s likely you’ll get hazard coverage of some kind bundled in as part of the commercial property coverage. In that sense, it’s mandatory in those states.
In states that don’t require businesses to get insurance, it’s clearly not mandatory. That doesn’t mean you should take a pass on it. Without insurance, your business is literally one bad day away from not existing anymore.
All of the above applies to businesses that you own outright. The situation changes when you owe money on the business.
Let’s say that you got a loan for the property from a bank. Banks will always make insurance coverage part of the loan agreement. It’s a safety net that ensures that the loan gets repaid even if the worst happens.
The bank may even specify the level of coverage you need or specific standalone hazard policies you must carry, such as flood, earthquake, or tornado coverage.
The Small Business Association runs a program that requires commercial property hazard coverage: the Economic Injury Disaster Loan. If you want or need this loan, your coverage must meet an 80 percent threshold of your business’ property value.
If you work out of your home, you have some options.
A homeowner’s policy offers some coverage, but you can increase that coverage with what’s called a homeowner’s policy endorsement that covers business property. You can also get a separate business insurance policy.
If you work out of an apartment or other residential rental property, you can get hazard coverage through a renter’s insurance policy. In fact, renter’s insurance is a good idea even if you don’t run a business out of your rental property.
There is no fixed cost for hazard insurance, as it comes as part of other policies unless you get a standalone policy for an excluded hazard. For many small businesses, a business owner’s policy offers the most affordable option. It offers an insurance bundle that typically covers most of your small business insurance needs.
Hazard Insurance and You
Hazard insurance is one of the insurance options that that can help protect your business from the truly unpredictable. For example, you can predict you’ll see bad weather, but you can’t predict that lighting will strike your business.
The good news is that most commercial property insurance policies will provide some hazard coverage. Just make sure you know what the policy excludes, so you can get standalone coverage for those hazards.
Looking for more business tips and advice? Check out the posts in our Business section.