Small Business Hazard Insurance Programs came into the spotlight with the Federal government’s response to the emergence of COVID-19 and its continuing and profound effect on small businesses. To help small companies to cope with the changes wrought by COVID-19, the Federal government makes funds available through loans administered by the Small Business Association (SBA). Its loan requirements include having adequate small business hazard coverage.
The SBA's size standards to establish a small business vary per industry. However, the rule of thumb identifies manufacturers with fewer than five hundred employees and most non-manufacturers with less than $7.5 million in annual revenue as small businesses.
What is Small Business Hazard Insurance & Who Needs It?
Small business hazard insurance programs include coverage from several types of property insurance. For example, a small business hazard insurance policy pays to repair and replace property damage caused by named perils such as fire, lightning, windstorms, earthquakes, floods, tornadoes, hail, snowstorms, hurricanes, explosions, riots, civil commotion, aircraft accidents, vehicle collisions, smoke, falling objects, water leaks, and more. Coverage extends to physical loss (damage) and liability for bodily injury or death due to accidents involving a named hazard.
Nearly every type of business requires some form of liability coverage, and most need some form of commercial property insurance. For example, when applying for an SBA loan, mortgage, or other types of business financing, lenders require the borrower to obtain the specific kinds of policies found in small business hazard insurance programs.
Many home-based businesses that own real estate will not need an additional commercial liability insurance policy as their homeowners policy may be sufficient. However, depending on circumstances, insurers may require other coverages such as business auto coverage with separate policies for each vehicle used by the business.
What Does Small Business Hazard Insurance Cover?
Besides covering a home or business from structural damage, small business hazard insurance covers personal property, including tools, equipment, furniture, and inventory. A typical small business hazard insurance program covers property losses due to the following perils:
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Fire and smoke damage.
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Theft and vandalism.
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Hail, and lightning.
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Blizzards, snow, sleet, or ice.
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Explosions.
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Sprinkler leakage.
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Building collapse.
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Wind.
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Vandalism.
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Power surges.
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Rioting and civil unrest.
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Property damage caused by aircraft or vehicles.
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Water damage with exclusions and limitations.
There are always exceptions to any list because not all policies are alike. That means when offering small business hazard risk management services to provide comprehensive coverage, it's crucial to give your full attention to policy details.
Sometimes business property insurance is used to refer to small business hazard insurance. Either way, business property insurance is designed to protect from losses to most, if not all, of a business' property, including buildings, structures, and any inventory or machinery found within.
In some cases, small business hazard coverage is included in a homeowners insurance policy, which is also alternatively known as dwelling insurance. Regardless of terminology, a policy covering just the structure is considered hazard insurance.
What Small Business Hazard Insurance Doesn't Cover.
Typical exclusions to small business hazard insurance include losses from flooding, earthquakes, acts of terror, nuclear attacks, or damage due to acts of war. Protecting against these perils requires separate insurance policies, most often they are bundled into small business hazard insurance programs. Businesses in geographic areas prone to such disasters must address their protection needs with policies specific to those perils. Understanding what a policy does and does not cover is essential to protecting insureds as fully as possible.
Small Business Hazard Insurance & Homeowners Insurance.
Several types of home and business insurance can qualify as hazard insurance that meets the standards set by the SBA. For example, many hazards are covered in commercial property, homeowners, condo, or renters insurance policies. For instance, most homeowners insurance policies cover the SBA requirements for those who own and work from home. As with any insurance coverage, each policy comes with specified limitations and exclusions and a deductible with payouts based on an adjuster's findings. For example, a renters insurance policy may cover insureds who don't own the property where they work. Regardless of ownership, approval from the SBA requires the policy to list the business in it. For example, in some instances, a commercial property insurance policy suffices as small business hazard insurance.
Hazard Insurance for an SBA Loan.
The SBA offers two loan programs to small businesses impacted by COVID-19. The Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program (PPP). Eligible companies are welcome to apply for both simultaneously, but they cannot be used for the same purpose.
A rigorous requirement to obtain an SBA loan is providing small business hazard insurance proof. The SBA requires proof of hazard insurance to complete its loan application process, including applications for EIDL and PPP loans placed because of COVID-19 or other disaster circumstances. Applications for EIDL loans also require general liability or commercial property insurance coverage, including hazard insurance.
Keep in mind purchasing additional coverages might not be necessary in cases where adequate coverage for business property exists, such as under a commercial general liability (CGL) policy. However, depending on the business' physical setting, additional requirements for location-specific insurance endorsements or policies such as flood insurance may be required for applicants seeking a mortgage-based loan.
SBA small business hazard insurance requires coverage equal to or greater than 80% of the loan amount request. Applicants must list the business's name – including those that use a DBA (doing business as) – on their small business hazard insurance policy and include proof they own the business property. And, finally, they must acquire the coverage within 12 months of receiving the loan.
Small Business Hazard Insurance Costs (and what factors affect the price).
Every business will have a unique cost for small business hazard insurance depending on numerous factors, such as these and more:
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The current value of the property.
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The property's age.
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The policy limits, deductible, and options.
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Whether replacement cost value is included.
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The condition of the property.
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The claims history of the property and the owner.
Expect to pay $700 - $800 annually for a policy with a $1,000 deductible and $60,000 limit.
Best Small Business Hazard Insurance Programs
While this guide focuses on Small Business Hazard Insurance, when it comes to servicing the needs of your small business clients, a full-service option is your best solution. The optimal place to look is the Program Business Market Directory. There you will find programs to suit your needs. A quick look-up leads to the Program Brokerage Corporation (PBC), a nationally ranked top wholesaler and powerful market resource for brokers and agents. PBC is also a partner for carriers innovatively reaching out to commercial insurance buyers.
The PBC Small Business program for Small Businesses has you covered. Agents can use its Professional Lines, General Wholesale, and Environmental Divisions to help them perform as well-informed consultants to their clients. PBC guides agents through the marketing challenges they face to help them secure the right coverage for their clientele's needs with the proper knowledge, market access, and service values.