Do You Have Hazard Insurance for Your Small Business?
Hazard insurance, also called commercial property insurance, covers your business building (if you own it) and property from common perils, such as fire, theft and storm damage. If your commercial property suffers damages or losses from one of these perils, your insurer will cover repairs and replacement of property, up to your policy's coverage limits. Hazard insurance is often part of a robust commercial policy, such as a business owner's policy but it can also be bought separately.
Below, we'll explain how hazard insurance works and how to buy coverage for your business.
What Is Hazard Insurance for Small Businesses?
Business hazard insurance, also called commercial property insurance, is insurance for business owners that covers commercial property (e.g., office building, machinery, inventory, etc.) against various hazards. Covered physical hazards are often weather-related, like fires, windstorms and hail, but can include theft and vandalism. Flood coverage is excluded.
The extent of your coverage will depend on your policy. Similar to a home or auto insurance policy, a commercial policy is subject to limits (how much your insurance will pay for a covered loss) and exclusions (exceptions for what your insurance will cover).
Hazard insurance claim example
Say you purchase hazard insurance for your warehouse and office building. An electrical fire spreads throughout the office, burning equipment and some of the building structure. You file an insurance claim and it is approved. Your hazard insurance helps pay for repairs to the office walls and also reimburses you for your equipment loss, up to the coverage limits.
How Does Business Hazard Insurance Work?
Business hazard insurance can be its own type of insurance policy, called a commercial property insurance policy. You can also find that hazard coverage is bundled into another type of commercial policy. For example, a business owner's policy conveniently offers a suite of business insurance coverages, including hazard coverage plus liability and business interruption (covers bills during necessary business closures).
Named peril vs. open peril coverage
When purchasing hazard insurance, you can choose between named peril coverage or open peril coverage.
Named peril coverage will insure your commercial property against only the perils listed in your policy — this will typically include damage from fires, lightning, wind and explosions. If the peril is not listed in your hazard policy, then you will not be covered for losses caused by that peril.
Named peril coverage is typically more limited when compared to open peril coverage but it may be cheaper. You can purchase hazard insurance for perils specific to your needs. For example, if your business is in an area with a high crime rate and is vulnerable to wildfires, then you may want to add "theft" and "fire" as named perils in your policy.
Open peril coverage insures your commercial property against all perils EXCEPT those listed in your policy. Exclusions commonly include damages from earthquakes, nuclear hazards, flood and government seizures. Even with exclusions, open peril coverage is more comprehensive than named peril coverage, protecting commercial property from more types of risks.
Whether you have a named peril or open peril policy, insurance carriers will typically reimburse you for your losses at actual cash value, up to the coverage limits. Actual cash value is the value of an item, minus depreciation, and is often lower than the price on a new replacement. Replacement cost coverage has an additional cost but will cover the cost to buy the item off the shelf today.
What Does Business Hazard Insurance Cover?
Business hazard insurance can cover all types of commercial property, including:
Building and structures (includes the actual building structure and other structures, such as fences and gates)
Some personal property
Exactly what business hazard insurance protects against will depend on the policy you purchase. Generally, business hazard insurance provides coverage for:
Ice and snow damage
Coverage can vary by insurance company and policy. Be sure to confirm your coverage with your insurance provider.
Hazard insurance will not provide coverage for the following losses:
You can purchase additional commercial policies to plug the holes in your coverage. A business owner's policy often includes coverage for hazards and liability, for instance.
How Much Does Business Hazard Insurance Cost?
Commercial property insurance costs can typically range from $500 to $3,000, according to The SMB Guide. The cost of business hazard insurance will depend on how much coverage you need and decide to purchase. Your industry can also affect your rates. A construction company, for example, may face higher rates because it is considered a high-risk industry that often involves expensive equipment and machinery.
Do I Need Hazard Insurance if I Run My Small Business From Home?
Homeowners insurance generally does not cover commercial property losses. A bookshelf, for example, may be covered if it burned down in a fire, but not the work laptop that was sitting on its shelf. You can get hazard coverage by buying a home insurance endorsement or commercial property coverage, like a business owner's policy:
Homeowners policy endorsement: Your home insurer may sell an endorsement that extends coverage to your business equipment. Coverage limits are generally on the lower side but some may insure your business property up to $10,000.
Business owner's policy (BOP): Offering more comprehensive coverage than a homeowners policy endorsement, a BOP can offer coverage for commercial property, liability and more with higher coverage limits.
What Types Of Insurance Should I Consider for My Small Business?
Hazard insurance covers only damages to your commercial property (building, equipment, inventory). With hazard insurance alone, you're vulnerable to liability claims and business interruption. Below are some types of commercial insurance that can supplement your hazard coverage.
General liability insurance: Covers several types of liability claims, including those related to bodily injury, property damage, libel, slander and advertising injury.
Product liability insurance: Covers losses due to defective products that have caused bodily injuries to a customer.
Professional liability insurance: Covers losses related to services rendered, such as malpractice or negligence.
Home-based business insurance: Covers commercial property and some liability for businesses based in a personal residence.
Business interruption coverage: Covers lost income when your business operations are interrupted by a covered loss. For example, business interruption coverage would cover the cost of renting a temporary office while your normal office is being repaired after a fire.
Business owner's policy: An insurance package that bundles multiple types of commercial coverage, such as liability and commercial property insurance.
How To Buy Hazard Insurance
When buying hazard insurance, you'll want to consider your coverage options, compare rates from multiple providers and regularly assess your coverage needs.
Determine what coverage you need
Since hazard coverage is typically a part of another commercial policy, you will need to consider what type of coverage you need. For example, a home insurance endorsement may make sense for a home-based tutoring service but a business owner's policy (which includes hazard coverage) may be a better fit if you run an online product store from home and store hundreds of thousands of dollars worth of products in your garage.
The insurance industry is competitive and you will find that many insurance companies — whether national, regional or local — may offer similar coverage at different rates. Small business owners should take the time to compare rates, terms and coverage from multiple providers to snag the best price available.
Revisit your insurance needs regularly
Markets are always shifting and revisiting your insurance needs can help you stay adequately protected and at the best value. Your insurance needs may have changed since your initial startup stages. As your business grows, you may discover that you need to expand your coverage or increase its limits. Even if you want to maintain the same level of coverage, you may find a lower-price plan with the same coverage from a different insurance company.
Protect Your Small Business
You've poured tons of time, capital and effort into your business. Be sure to protect your hard work by insuring your commercial property against weather-related damages, theft, fire and more. With tons of commercial policies out there, it can be challenging to know which to buy. With SmartFinancial's free online tools, you answer a few questions and we match you with a commercial insurance policy based on your answers. Just enter your zip code below to get started on your free quote!