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Did you know that the Small Business Administration’s business loans for emergencies require you to have SBA EIDL hazard insurance to comply with loan policies?But what is hazard insurance? Do you already have adequate coverage? And if you don’t, what kind of policy should you get? What Is Hazard Insurance?
Hazard insurance is coverage that protects your home or business from structural damage and covers the costs to replace or repair personal property, tools, equipment, furniture, and inventory.
There are several types of home and business insurance that may meet the SBA’s qualifications for hazard insurance. If you own your home and work out of it, homeowner’s insurance should cover the requirements. If you don’t own the property where you work, renter’s insurance may suffice. In either case, whether you work from home or not, the insurance policy must list your business to be approved by the SBA.
Commercial property insurance is considered hazard insurance. In some states, personal property insurance will not be considered hazard insurance, so see what the rules are in your state.
Speaking of the SBA and its many loans, most do require hazard insurance. But one of the key differences between the EIDL vs PPP programs is that EIDL does require hazard insurance while the Paycheck Protection Program does not.What Does It Cover?
Hazard insurance—and any insurance policy that falls under the hazard insurance category—covers damage by natural disasters such as hail, fire, and water damage.Let’s say there’s a hurricane in your area and all your computers get wiped out by the waters. Your hazard insurance policy would cover the cost to repair or replace them so you could get back up and running. Is Hazard Insurance Required for EIDL Loans?
You need hazard insurance for EIDL loans.In some states, including California, if you live in a special flood hazard area, you may also be required to purchase and maintain flood insurance for the full insurable value of your business property for as long as you have the loan.Why Is It Required?
EIDL loan hazard insurance requirements are in place to protect you and the SBA’s investment in your business.Essentially, it’s in the SBA’s best interest—and your business’—to have your business covered in case of problems that would keep you from operating. If you can get back up and running, you can resume generating revenue...and being able to repay your loan.How Much Coverage Is Required?
So how much hazard insurance for SBA EIDL loans are you required to have?Currently, the EIDL hazard insurance requirements are that you must have coverage for at least 80% of the amount you borrow through the Economic Injury Disaster Loan program. You can, of course, insure up to 100% if you’d like.How Does Hazard Insurance Work?
Hazard insurance works like any other property insurance. You pay your monthly premium based on your assets and property and how much coverage you want.If something were to happen, say, a fire that demolished everything in your business, you would file a claim with your insurance company. The claims adjuster would come to your property to assess the damage and determine how much the company would give you for the loss. Once you receive that money, you can repair or replace what was damaged or lost.SBA EIDL Hazard Insurance Restrictions
Part of the EIDL use restrictions include hazard insurance. Here are a couple of scenarios to be aware of.Home-Based Businesses
If you run your business out of your home, how do you get hazard insurance? Your homeowner’s policy will cover some of what you need, but you may also need another policy specifically for the business equipment and assets, such as a business owner’s policy. This provides both liability coverage and property protection for your business equipment. Another option is a home-based business insurance policy, which is a rider to your existing homeowner’s policy that covers business equipment and liability.Not Owning the Property
If you don’t own the property where you run your business, whether that’s a home-based business or a commercial property, you will need renter’s insurance to qualify as hazard insurance. Just make sure the business is listed on the policy if it’s a home-based business.Applying for Hazard Insurance
If you’ve been told you need SBA EIDL hazard insurance and you don’t have a policy that qualifies such as what we’ve mentioned above, you’ll need to get quotes from a few business insurance companies. You’ll be asked questions about your business, like whether it’s home-based, how many employees you have, and what industry you’re in. You’ll need to select the type of coverage you want. Some insurers will lower the rate if you bundle different policies together.You’ll be given a rate based on the information provided. It can be smart to shop for quotes with more than one insurance company to find the best rate.Cost of Hazard Insurance
How much you pay for your SBA EIDL hazard insurance will depend on several factors, including:- what kind of property you own
- how many employees you have
- how many insurance claims you’ve filed in the past
The best way to save money on your policy is to bundle multiple types of insurance with one carrier, which may get you a discount. Also, you may save more by paying for your entire annual policy in one payment rather than stretching it out monthly.
More Details on EIDL
Now that you know more about SBA EIDL hazard insurance, educate yourself further on the EIDL loan program. We’ve got many articles to answer your questions. Find out if EIDL loans are forgivable and how to calculate an EIDL loan amount to see how much you can qualify for.The Takeaway
If you decide not to take out an EIDL loan or you have one but still need additional financing, comparing small business loan terms is also an option.
Photo credit: iStock/Ridofranz
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About the Author
Susan Guillory
Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards. 
