The Importance of Hazard Insurance for a Business
By Jeffrey Abadie
April 7, 2022
If you’re a business owner, you might be wondering which insurance coverage is right for you. There are many types of insurance, and while you might be familiar with some, hazard insurance is a very important one to consider. Let’s explore what it covers so that you have a better understanding.
Unlike liability insurance, which covers costs incurred during legal lawsuits, hazard insurance protects your assets from unforeseen events. Like liability, hazard insurance can be a significant boon and keep a business from going under if an unexpected issue arises. These events can include fire, vandalism, theft, storm damage, gas leak explosions, faulty sprinklers, the collapse of a building, and types of water damage. Many small businesses, especially new ones, struggle to overcome such problems and often must close their doors and cut their losses, which can be quite concerning for investors. Having a policy makes your business a more enticing investment for potential backers and helps allay their fears that something might go wrong. Similarly, you might be required to have hazard insurance that covers a specific portion of your property if you have a business loan. Loans from both the Small Business Administration (SBA) and Economic Injury Disaster Loans (EIDL) have different requirements regarding coverage limits.
For many small business owners, the cost is an understandable factor when considering whether to invest in hazard insurance. It’s essential to read the fine print on every policy because your coverage is dependent upon the plan you select. Some plans will include coverage for earthquakes and floods, while others will cover man-made disasters only. Thankfully, these types of policies are incredibly flexible, meaning you can tailor them to the specific needs of your business and not pay extra for coverage you don’t require. For most small businesses, the average price is just over $60 per month, or about $750 per year, depending on the limit and deductible.1 Factors such as the brick-and-mortar size of your business, the value of your wares and equipment, and the insurance company you select will have an impact on the bottom line.
Due to this, it’s essential to get quotes from several insurance companies and compare the coverage offered versus the monthly payment. It’s also important to note that insurance companies use two different metrics when determining the value: the replacement cost and the actual cash worth. The latter is a representation of the item minus depreciation, as the true cash value is characteristic of the asset with a decline in value over time. This means that the replacement cost will likely be the higher of the two.
There are, of course, pros and cons to every insurance policy. The downsides come in the form of deductibles, paperwork, overall cost, and insurance company practices. For instance, businesses occasionally find themselves in a months-long back and forth trying to get a claim filed correctly for reimbursement.
We at Sand Hill want to make sure that our clients understand these pros and cons before making any final decisions when it comes to selecting a hazard insurance policy for your business. Please keep in mind that it's essential to discuss each option with your Wealth Manager, as well as your estate and tax professionals before implementing, to be sure that you’re following the best pathway tailored to your financial journey.
Source: insureon.com
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