Hazard Insurance for Small Businesses

While a disaster can be devastating for any business, small businesses have an especially difficult time recovering. Many are operating on a tight budget, and the time and costs involved in recovering from a disaster could make it impossible for a business to bounce back.

That's why it is critical for businesses to have hazard insurance. This insurance helps to cover the costs of repairing or replacing the physical structures of your business. Learn more about hazard insurance for a small business.

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What is Hazard Insurance?

Hazard insurance helps to pay for you to repair or replace the structures of your business, like its roof, walls and flooring — if they're affected by a disaster. Rather than being sold on its own, this coverage is typically part of a commercial property insurance policy.

This coverage helps pay for damage from:

• Fire
• Theft
• Lightning
• Wind
• Hail
• Vandalism
• Certain types of water damage

It's important to note that hazard insurance doesn't cover every potential disaster. Commercial property insurance policies typically won't cover damage from floods or earthquakes. If you're concerned about those risks, you'll need to purchase separate policies.

How Hazard Insurance Works

Hazard insurance helps you to repair or replace structures on your business property that are impacted by a covered event. Typically, you pay for the cost of the repairs or replacements upfront and are reimbursed for the costs according to the terms of your policy.

Policies will typically cover either the replacement cost or the actual cash value. Policies that pay for the replacement costs will reimburse you for the cost of repairing or replacing your property with comparable materials without deducting anything for depreciation.

Policies that pay for the actual cash value will reimburse you for the cost to repair or replace your property with comfortable materials minus depreciation. In other words, policies that pay actual cash value will typically reimburse you for less than policies that use replacement costs. Actual cash value policies tend to have lower premiums than replacement cost policies.

That's why it's essential to review the terms of any policy you’re considering carefully. Some small businesses might find it worthwhile to pay a little bit more in premiums for the peace of mind of knowing they'll have more coverage if a worst-case scenario occurs.

Why do I Need Hazard Insurance for my Small Business?

You need hazard insurance for your small business because it could cost thousands of dollars for you to repair damage to your business structures. That's money that a lot of small businesses don't have on hand. Add to that the costs of having to close for a few days to a few weeks or more, and the disaster could lead to your business having to close its doors permanently.

If you run your business from your home, you might be under the impression that homeowners insurance will cover you. Unfortunately, homeowners insurance is typically limited when it comes to how much it will cover in regard to your business. It may not be enough to cover business equipment like computers or your business inventory. That's why it's critical to have a commercial property insurance policy or a business owners policy, both of which include hazard insurance.

Business Hazard Insurance Coverage

Commercial property insurance policies provide hazard insurance coverage. You can buy this insurance policy on its own or buy a business owners policy, which bundles commercial property insurance, general liability insurance and business interruption insurance.

Commercial Property Insurance

Commercial property insurance covers more than just the structures of your building. It covers permanently installed fixtures and items that you use to maintain the building, like appliances. It also covers the building's contents, including personal property and inventory, and items that are in your care, like client property in your custody. 

Business Owners Policies

Business owners policies (BOPs) bundle commercial property insurance with two other types of coverage.

• General liability insurance: This coverage helps protect you if you are sued because of bodily injury or property damage, like when a customer slips and falls or if you damage a client’s home while you're making repairs. It also helps to cover personal and advertising injury, which includes claims regarding false advertising, copyright infringement, libel and slander.
• Business interruption insurance: This insurance helps to make up for the losses you experience while your business is temporarily closed to make repairs. It helps to make up lost income, make mortgage, rent or loan payments, pay taxes and make employee payroll.

Is Hazard Insurance Right for You?

Most small businesses should have hazard insurance as part of a commercial property insurance policy. To find the best policy, contact multiple insurance companies and review each quote carefully. Choose a policy from a reputable company that offers reasonable rates.

Frequently Asked Questions