If a small business is also one that is considered a «home-based business», it may not currently have the types of insurance it requires. A homeowner’s insurance policy does not generally cover business inventory or equipment, even if the business operates completely out of the home. Most likely, a home-based small business insurance policy will be required. This policy may cover various business-related issues, such as, liability, advertising and personal injury, property, theft, disability, and crime.
There are approximately 18 million home-based businesses in the U.S. Around 60% of these do not have enough insurance coverage, according to the Independent Insurance Agents of America Inc. (IIAA). These home-based entrepreneurs often believe they are covered by homeowners insurance, but homeowner’s policies only allow about $2,500 for loss of business property and do not cover any losses that may occur outside the home. These policies may also exclude liability coverage for any business-related activities.
Assess the needs of the home-based business by asking lots of questions in order to determine the type of insurance needed by the business, as well as how much coverage is needed. Include questions based on the inventory and equipment in the home and the cost of replacing them. Consider how many customers will enter the home and what may happen to the business if unforeseen events caused the business owner to, temporarily, be forced out of the home.
A home-based business owner, similarly to most business owners, should have a business owner’s policy to cover liability and property damage, but, unlike other business owners, may need a different type of coverage to supplement the BOP.
A home office policy may be an option for the home-based business. This policy is a combination of homeowners and business insurance and eliminates any duplicate coverage or coverage gaps. This may be a better choice for a home-based business with only a handful of visitors weekly and one that also has expensive computer equipment. It covers general business liability, as well as, income loss and continuous expenses such as payroll for a period of around one year if the home-based business must halt operations due to damage to the home. Other coverage includes accounts receivable, record loss, fire, theft, minimum off-site business property, and personal liability.
If a business, no matter how big or small, is run from a home, it still faces the same huge risks as any regular company. Every business, big or small, including home-based ones, needs insurance to protect it from those risks, whether the home business is a sole proprietorship or incorporated. Here are some insurance tips for insurance for owners of home-based businesses:
» If the business currently has no insurance policy outside of a homeowner’s policy, know this: Standard home insurance policies do not cover any home businesses. If that is only effective policy, the business may not survive if disaster strikes.
» Homeowner’s insurance policies also do not cover structures on the home property that are in use for business purposes. For example, if your hair salon is being run out of a carriage house that was recently renovated at the back side of your property, a fire that destroys this structure may also destroy the business, as the home insurance policy will not reimburse you.
» Personal property coverage for business items in homeowner’s policies is often limited $250 away from your home and around $2,500 for in home coverage, meaning if you tote your laptop around to customer’s offices or homes, make sure it is not damaged or lost, as the home insurance policy will only reimburse a fraction of the cost.
» Homeowner’s policies provide absolutely no protection for business data, so, if the business’ important files are lost in a fire, no compensations will be received.
» If a client visits the home for business purposes and is injured, a home insurance policy will not cover the injury. Also, the policy does not cover injury the business owner/home owner may unintentionally inflict on a client or anyone else while doing business.
» If a claim us brought against the home-based for libel or slander that caused economic damage to another person, the business is not covered under a homeowner’s policy.
The types of insurance available to home-based small businesses vary and should specifically suit the business’ needs. Some types include business personal property insurance, loss-of-income insurance, advertising and personal injury insurance, on-premise business liability, and off-premise business liability. It is important for the business owner to consider which type or combination of types is right for the needs of his or her home-based business.