They say home is where the heart is or where you hang your hat. According to the U.S. Census Bureau, it’s also where many of us work and run our businesses. People work very hard to make their home-based business a success, but for some reason (the comforts of home?), many overlook the fact that their home-based business is actually a business. This is particularly true when it comes to insurance.
A survey conducted by the Independent Insurance Agents & Brokers of America found that nearly 60 percent of home-based businesses did not have business insurance coverage. Nearly 40 percent thought their business was covered by their non-business insurance. Nearly 30 percent believed their business was too small to insure. As a result, these home-based businesses were vulnerable to potentially substantial uninsured losses.
Owners of home-based businesses often assume that the insurance covering their home will also cover their business. This isn’t true. Standard homeowners’ insurance policies are not designed to cover the risks of operating a business. They typically have business-related exclusions and limitations that leave home-based businesses with little, if any, protection.
For example, standard homeowners’ policy often cover property used primarily for business purposes, but the amount of coverage is very low, typically $2,500. Take a minute to calculate how much your business property costs. Is $2,500 enough to cover everything? Probably not.
An even bigger risk is the liability exposure created by home-based businesses. What happens if a client falls in your home or if someone is injured by the product or service you provide? Standard homeowners’ policies have exclusions for business-related activities, so there would be no coverage for what could potentially be substantial liability.
Owners of home-based businesses cannot rely on non-business insurance, like their homeowners’ or personal automobile insurance, for protection. Business risks require business insurance. Though insurance needs usually depend on business operations, there a few types of coverage that most home-based businesses need, including:
Property: Protects the value of business property from loss due to various perils, like theft and fire. Limits must be sufficient to cover all business property.
General Liability: Protects against third-party claims for personal injury and property damage arising out of business operations. Products liability coverage is necessary if goods are manufactured or sold.
Commercial Auto : Protects against claims arising out of the use of a vehicle for business purposes. Depending on the operations, hired and non-owned coverage may also be necessary.
Professional Liability (Errors &Omissions): Protects professionals (attorneys, accountants, etc.) and quasi-professionals (real estate brokers, consultants, etc.) against claims that they erroneously performed or failed to perform their services .
Workers’ Compensation: Provides medical and lost wage benefits to employees injured on the job. State law typically dictates whether a business is required to carry workers’ compensation insurance.
Home-based businesses may need more specific types of insurance, like employment practices liability or cyber liability insurance. Insurance needs vary with business operations, so there isn’t a one-size-fits-all approach for insuring a home-based business. And, depending on the circumstances, coverage may be obtained by adding business-specific endorsements to a homeowners’ policy, by purchasing a Business Owners Policy (BOP) or by purchasing multiple stand-alone commercial policies.
The lack of uniformity and numerous options can make it difficult to identify and obtain the right insurance for a home-based business. An experienced insurance agent is usually needed to identify specific business risks and develop an effective yet cost efficient insurance program.
Please contact us if you have questions or would like more information about insuring your home-based business.
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