Friends and family members often turn to me for tips and advice on all things personal financial decisions. This includes asking for recommendations on where to get the best lower cost insurance. A few days ago, a close friend of mine emailed me with a question about risk insurance for EIDL loans. She had recently applied for an economic disaster loan through the SBA website and his loan was approved. Shortly after funding her loan, she received an email from an SBA representative asking her to send proof of risk insurance covering her business. Below is the email she received from the SBA representative:
Good morning sir. ******
In accordance with your authorization and loan agreement, please provide the following document (s):
Please provide risk insurance covering at least 80% of your business content. The borrower’s name must appear on the policy. Please send documents to this email address or fax to 202-481-4481 or mail to:
U.S. Small Business Administration
Processing and disbursement office
14925 Kingsport Road
Fort Worth, Texas 76155
She didn’t know what to do about this email. She is not an owner and runs her small business from her rental apartment. Urgent requests like this from your lender can give you a lot of headache, especially if you are unfamiliar with most of the concepts behind buying an insurance policy for you. your business. So I thought it would be helpful to share with our readers how I was able to guide my friend through the process of getting the right insurance to meet SBA requirements and bring her EIDL loan into compliance. Let’s start with the basics:
What is risk insurance?
Risk insurance generally refers to insurance that covers the structure of your home or business. It is insurance that helps you pay to repair damage caused by certain risks. Other types of damage to your home will be covered under other terms of your home insurance policy. Lenders generally require minimum risk insurance before they approve you for a loan. Sometimes people use the term risk insurance to refer to a home insurance policy. There is also a misconception that risk insurance can be purchased separately from home insurance. This is not the case if you are an owner. You can’t get the latter without getting the former.
What does risk insurance cover?
As the term suggests, risk insurance will cover the property in the event of catastrophic damage or peril. These events may include, but are not limited to:
- Lightning damage
- Water damage
- Civil unrest and riots
- Vandalism and theft
- Other Damage (ex: a tree crushing your roof)
Can you get risk insurance if you don’t own the property?
Technically not, but you can take out what is called tenant insurance, which will cover you against any damage. It sounds confusing, but that’s only because people use the term risk insurance to mean home insurance, and you can only get home insurance for a property that you own. In this particular case concerning my friend, the SBA had already given her a loan and now required her to present proof of insurance covering her business assets (computers, documents, printers, etc.) against hazardous events. Renters’ insurance will do just that if you get the right policy, so that’s all they need to get to comply with their claim. If you are running a home business from a rental property and want affordable rental insurance, click the button below to see providers starting at $ 5 / month.
Why does the SBA require risk insurance for EIDL loans?
The Small Business Administration is a lender. Like any other lender, the SBA tries to protect their loan collateral from unforeseen circumstances. For this reason, the Small Business Administration requires all borrowers to purchase risk insurance within 12 months of approving one of their loans. This includes all economic disaster loans. Additionally, all borrowers are required to maintain coverage for the life of the loan.
Minimum coverage for SBA disaster loans
To make sure that you meet all the requirements imposed by your loan agreement, you must obtain the amount of coverage prescribed by the SBA. They have posted some very detailed guidelines on their website which I’ve taken the time to summarize below for your quick reference.
What if my business is home-based?
If your business is home based and you own your home, then you need to purchase a home insurance policy. Make sure the insurance company adds your business name to your policy. If you are renting out the property in which you live and operate, you need a tenant insurance policy that will provide similar coverage against risks. In the above email, the SBA representative makes it clear that he wants my friend’s policy to cover at least 80% of his business assets. Make sure you let your insurance company know how much coverage you need to meet your loan requirements and that they are willing to include your business name on your home or home insurance policy. tenant insurance, depending on your situation. If they’re not willing to cover your business under the same policy, unfortunately it’s time to switch providers, or you’ll need to purchase a separate Business Property Insurance (BPI) policy.
Commercial Property Insurance
Also known as business property insurance (BPI), protects commercial buildings and movable tangible property owned by your business. These types of insurance policies are designed for businesses operating in commercial buildings, although some businesses are happy to issue you with a BPI even if your business is home-based. Commercial property insurance generally offers more coverage than just home insurance. If you already have commercial property insurance, there’s a good chance your current policy will more than meet the SBA’s coverage requirements. If you operate a physical business, chances are you will need to purchase commercial real estate insurance just to comply with local regulations.
The cost of risk insurance
The premiums you pay for risk insurance will depend on several factors, including the limits and deductibles you choose, as well as the type of coverage. One of the main factors in the cost of risk insurance is the state in which you live. Florida and Texas, for example, are among the more expensive states because they experience more frequent natural disasters that destroy property; like hurricanes and tornadoes. There is a basic formula that can help you get a rough estimate of how much risk insurance will cost you if you own a home. Multiply the purchase price of your home by 0.23% to 0.33% and this will give you a rough estimate of the annual cost of risk insurance. If you’re a tenant and only need tenant insurance, I’ve got better news. The average cost of renters insurance in the United States is around $ 15 per month, according to the Insurance Information Institute
Where can I get affordable risk insurance to meet my EIDL requirements?
The best way to get a good deal on risk insurance is to compare rates. By comparing quotes from different providers, you will save time and money in finding the right policy. To quickly compare quotes from the best insurers in your area, enter your postal code and select if you are a tenant or owner of your home on the form at the top of this article. Click the button below to get started and view the rates from multiple insurers to find the most affordable option.
Ultimately, there’s a good chance you already have risk insurance if you own a physical business. If you have a home business like my friend, you just need to make sure that you have risk coverage under your business name. Often, it doesn’t cost more to add your business name to your policy.
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