Small Business Hazard Insurance: What Is It, What’s Covered, & Which Businesses Need It?

8 min
Jan 30, 2023

All it takes is one unexpected occurrence for your entire business to come crashing down if you aren’t adequately insured. 

Imagine walking into your restaurant hours after closing to find your tables, chairs, floors, and all of your supplies drenched because your sprinklers’ smoke sensor went off when it wasn’t supposed to. That could cost you thousands of dollars while you’re shut down for weeks repairing the damage. 

Do you know how you’d cover the losses? A business hazard insurance policy isn’t typically the first thing that comes to business owners’ minds, but it’s one of the best ways to protect your assets. Learn what it is, why you need it, and how to choose the best policy for your business. 

What Is Hazard Insurance for a Business? 

As a type of property insurance, hazard insurance protects a business's physical assets, structures, and equipment if it is destroyed or damaged in an accident. 

Hazard insurance may also be referred to as business property insurance. It is frequently required by landlords and mortgage lenders. If your business has a physical location like a retail store or office building, you may also be required to purchase a hazard insurance policy.

If your business is applying for certain government loans, hazard insurance may also be required — we’ll touch more on examples of this later. 

Does Business Insurance Include Hazard Insurance?

While some business insurance policies include hazard insurance, it is not the case for all policies. 

Generally, business insurance that includes hazards provides coverage for specific perils, or risks, like:  

  • Fire
  • Wind
  • Theft
  • Etc.

But it is important to note that not all business insurance policies include hazard insurance. Some policies may require business owners to add it to their policy as an endorsement. 

When purchasing business insurance, be sure to review any specific coverages involved in the policy to help you determine if you need to purchase additional coverage. 

How Does Business Hazard Insurance Work for Small Businesses?

Hazard insurance is put in place to help your business repair or replace structures or equipment that have been damaged by a covered event. 

Usually, business owners are responsible for paying for the replacement or repairs, and your insurance provider will reimburse you for those costs as specified in the terms of your insurance policy. 

Policies generally work one of two ways:

  1. Covering the cash value — reimbursing you for the cost to repair or replace the property with comparable materials, but accounting for depreciation. Cash value policies tend to have lower premiums, but reimbursement amounts are generally lower. 


  1. Covering the replacement cost — reimbursing you for the cost of repairing or replacing the business property with similar materials. Replacement cost policies do not deduct anything for depreciation. These policies generally have higher premiums than cash-value policies, but reimbursement amounts are typically higher, too. 

What Does Business Hazard Insurance Include?

Every hazard insurance policy may be different, so it’s important that when searching for hazard insurance, you discuss what is covered and what isn’t.

Generally, small-business hazard insurance policies cover property that is damaged or lost due to: 

  • Certain types of water damage
  • Fire
  • Smoke
  • Theft
  • Vandalism
  • Hail and lightning
  • Sprinkler leakage
  • Explosions
  • Damage due to aircraft or vehicles
  • A building collapsing

Business hazard insurance can help cover what it costs to repair or replace things belonging to your business like: 

  • Tools 
  • Equipment
  • Furniture
  • Inventory
  • Computers
  • Accounts receivable
  • Outdoor landscaping items — fences, lighting, etc. 
  • Valuable documents

There are always exceptions to what your specific insurance provider will cover. Always research and read your potential policy closely to see which losses are covered and which are not before making a purchase. 

What Isn’t Covered by Business Hazard Insurance?

Your business hazard insurance coverage may exclude certain types of damages.

While this can depend greatly on your business policy, and your insurance provider, hazard insurance generally doesn’t cover damage due to: 

  • Flooding
  • Earthquakes
  • War 
  • Nuclear attacks
  • Acts of terror
  • Government actions
  • Intentional acts by the business owner or their employees

How Much Does Business Hazard Insurance Cost?

The cost of business hazard insurance can vary greatly based on several factors, including the: 

  • Size of the business
  • Business location
  • Type of business 
  • Level of desired coverage

Additional factors that may influence the cost of your policy include: 

  • The type of property that’s being insured
  • The value of the property being insured
  • Potential risks and hazards associated with your business or industry
  • The number of employees working for your business 
  • Amount of coverage you need 

The best way to get an accurate quote for business hazard insurance is to contact an insurance agent, or broker, who specializes in commercial insurance policies. These professionals can help you assess your needs and provide you with a quote based on your unique preferences and requirements. 

Why Does My Small Business Need Hazard Insurance? 

All businesses, no matter the size or type, should consider purchasing a hazard insurance policy to protect their business against potential losses that may occur due to unexpected events. 

Damages can cost your small business thousands of dollars, money that you may not have on hand. Now, add in the cost of closing for a few weeks — or months — due to an event, and your business could end up having to close its doors permanently. 

Don’t run the risk of being forced to shut down. 

Consider the risks you’re taking by not purchasing hazard insurance for your small business. You should also connect with your mortgage lender or landlord to find out if you are required to have a business hazard insurance policy. 

SBA Loan Applicants 

If your business has suffered from a substantial economic injury and is located in a declared disaster area, you may be eligible for financial assistance through the U.S. Small Business Administration (SBA). 

These SBA loans can provide up to two million dollars to help your business meet its financial obligations or cover operating expenses that you could have met had a disaster not occurred. 

SBA loans may be based on your economic injury and the needs of your business, regardless of if your business suffered any actual property damage. 

To receive an SBA loan, you may be required to have hazard insurance on all assets pledged as collateral. For more information on the insurance requirements for an SBA loan, click here

Home-Based Businesses

Run a home-based business

You’re not out of the woods if you are using homeowners or personal property insurance.

Most homeowners insurance policies will limit how much they will cover or exclude business property from your policy altogether. 

You should cover repairs or replacement of business equipment and property, and provide liability coverage in case of any accidents or injuries on business property. 

How To Choose the Right Hazard Insurance Policy for Your Business

#1: Assess Your Risks

Choosing the right policy for your business is a big decision that you want to get right. Before you make a purchase, take time to analyze your risks and consider the following factors: 

  • The type of business you operate: Different types of businesses will have different risks and hazards. For example, a restaurant will have different insurance needs than a manufacturing facility.
  • The location of your business: The location of your business can also play a role in the hazards it could potentially face. For example, if your business is located in a location that has a high risk for fires, you may need stronger coverage. 
  • The value of your assets: The value of your assets, including buildings, equipment, and inventory, should also be considered when selecting a policy.
  • The amount of coverage you need: The amount of coverage your business will need will depend on the value of your assets and the potential losses your business could suffer from in the event of a covered hazard.
  • Your budget: The cost of insurance will also play a role in selecting the right hazard insurance policy. Be sure to compare policies and prices from multiple companies to find the best coverage at a price that’s right for your budget.

#2: Consider Premium Costs

Business hazard insurance policies are something that you may want to make adjustments in your budget for. We mentioned above how your premium costs may vary based on your policy. 

If you’re looking for a policy that is going to cost less, you may have to consider risking smaller reimbursement amounts. 

Make sure to weigh all of your policy options before purchasing a plan. Be sure to ask yourself which type of plan works best for your unique needs. Is it one that offers peace of mind and protection in a worst-case scenario, or is a more “budget-friendly” option something you’re hoping for? 

#3: Seek Advice From the Professionals

Insurance policies and premiums, brainstorming scenarios, and analyzing the risks can all be confusing and sometimes very overwhelming — especially if you’re doing it on your own.

To make things easier and ensure you’re investing in the right hazard insurance policy, consider talking with an insurance agent or broker to help ensure you’re purchasing a policy that meets your business needs and protects your assets.