What is SBA EIDL Hazard Insurance?Everything You Need to Know
Small Business Administrations (SBAs) are required to have an Economic Injury Disaster Loan (EIDL) Hazard Insurance as part of compliance with their loan policies.
Particularly, it is a requirement for SBA EIDL emergency business loans.
This article will explore what type of hazard insurance policy you will need, or if you have enough coverage.
What is Hazard Insurance?
Hazard Insurance is a type of insurance coverage that provides home or business protection against damages in the structure.
Included in the coverage is the repair or replacement cost against damages to personal property, equipment, tools, inventory, and furniture.
There are several insurance coverages (Home & Business) that meet the guidelines set by the SBA for hazard insurance.
As an example, for those who own their homes and also work there, home insurance will suffice as hazard insurance.
If you are only renting and working in your rented space, the renter’s insurance will do.
Either way, rented or owned, your business must be listed in your insurance policy to qualify.
Commercial insurance also qualifies as hazard insurance.
However, property insurance does not qualify as hazard insurance in some states.
It is better to check the rules in your state and make sure.
Among the many loan programs offered by the SBA, the key difference between the EIDL and Paycheck Protection Program (PPP) is that the latter does not require Hazard Insurance.
What it Covers
The main coverage of Hazard Insurance is damages that were caused by natural disasters such as fire, flood, hail, etc.
For example, if there was flooding in your office due to a hurricane and it damaged all your equipment, hazard insurance takes care of replacing what has been damaged so that your business can continue its operations.
Is Hazard Insurance a Requirement for EIDL Loans?
Hazard Insurance is a requirement for EIDL Loans.
However, in some states where flooding frequently occurs, additional insurance such as flood insurance will be required for the entire value of the property that needs to be insured, as long as the loan is active.
Why it is Required
SBAs and loan applicants are protected when there is an EIDL Loan Hazard Insurance in place.
Essentially, when this insurance is active and in place, the business will get back up and continue its operations should there be natural disasters that damage the business.
When operations can continue, the business will be able to continue generating revenue and pay for the loan.
How Much Coverage is Required
The coverage requirement for EIDL Loan Hazard Insurance is at least 80% of the property’s value.
The policyholder has the option of getting 100% insurance coverage if needed.
How Does Hazard Insurance Work?
Hazard Insurance works the same way as any other insurance.
Based on the coverage and the policy applied for, a premium is to be paid either monthly or annually.
Should damages occur to your property, an insurance claim has to be filed with the insurer and a claims adjuster would visit the damaged property for assessment.
Based on this, the insurer shall provide the money to cover the damages and it is the discretion of the policyholder how the replacement of the damaged property is to be addressed.
Hazard Insurance Restrictions
There are a couple of restrictions under SBA EIDL Hazard Insurance.
It includes the following:
Businesses ran from home have homeowners insurance, which is sufficient to cover some of your needs.
However, your business’s assets and equipment will need another insurance policy specifically required to cover them such as the business owner’s policy.
The Business Owner’s Policy provides coverage and protection for your company’s equipment.
Getting a rider for your existing homeowner’s insurance policy can extend the coverage to business liabilities and equipment.
This coverage is a home-based business insurance policy.
Not Owning the Property
If you are only renting a home or a commercial space where you conduct your business operations, a renter’s insurance is sufficient to qualify as hazard insurance.
The only consideration is for the business to be listed on the policy as a home-based business.
Applying for Hazard Insurance and Its Cost
The information needed by insurance companies to provide a quote for hazard insurance are the following: if the business is home-based, the number of employees, the industry in which your business operates, and the type of coverage needed.
When policies are bundled, some insurance companies provide a discount on the insurance premium.
The insurance premium will be based on the information provided.
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University of North Texas "FACT SHEET ABOUT U. S. SMALL BUSINESS ADMINISTRATION (SBA) DISASTER LOANS " Page 1 - 2. November 2, 2022