Thanks to advances in technology, more and more people are running home-based businesses. But will a homeowner’s policy cover the risks of a home-based business?
In nearly every case, the answer is no. The only exception to this might be if a homeowner’s policy has a special endorsement, such as to run a catering company from your home.
Yet few companies offer such endorsements. Additionally, some policies may give a very limited amount of coverage for business property, such as a computer.
According to the Independent Insurance Agents & Brokers of America, roughly 60% of home-based businesses lack adequate business insurance. The New York Times has reported that an estimated 44% of small businesses do not operate with insurance at all.
One reason owners may choose to forgo insurance is due to confusion over what may be already covered by a homeowner’s or a renter’s policy. Unfortunately, the majority of home-business owners have little or no coverage from their homeowner’s policy.
What’s more, if you file a homeowner’s (or renter’s) claim for losses sustained by a previously undisclosed home-based business, your insurer may refuse to cover it – or cancel your policy.
If customers never come to your home for business purposes because you’re selling items exclusively online, you may think you don’t need coverage. But in reality, you do.
What if someone takes action based on information on your website, or someone is injured using a product or service you provide? What if the FedEx man shows up to deliver a business package and slips on your doorstep? If it’s for your home-based business, your homeowner’s policy likely won’t cover your liability.
So how can you protect a home-based business? Start by insuring your business right away. Typically, you can choose from one or more of these three basic types of insurance:
1. Rider to a homeowner’s or renter’s insurance policy
The most budget-friendly option is an add-on or rider that expands a homeowner’s or renter’s policy to cover the home-based business. The cost of such a rider is minimal – perhaps $100 a year – but it generally provides about $2,500 of additional coverage.
This type of insurance is ideal for a home business that is primarily operated online by one person. You should consider adding this rider if your business does not require a lot of valuable equipment; does not have many business-related visitors, and is unlikely to suffer a major loss if unable to operate for a while as a result of fire or another disaster.
Such coverage may work, for example, for a graphic designer who works at home and does all of his business online, including delivering files. But it could leave a home-based business owner on the hook for costs such as a large medical bill for that injured FedEx guy.
2. In-home business policy
An in-home policy covers a broader spectrum of contingencies, including loss of critical documents or theft of funds being taken to the bank for deposit.
An in-home policy, issued by a home insurer or a specialty firm, usually is a plan against injury or theft covering as many as three employees. Rates typically run from $250 to $500 and the plans can cover as much as $10,000 in losses.
Most serious home-based business owners may want to consider picking up at least an in-home policy, which covers business equipment and liability for injury.
3. Business owner’s policy
Entrepreneurs who need more than $10,000 of coverage should pay for a business owner’s policy. Brick-and-mortar retailers, among other businesses, generally opt for this comprehensive policy.
A business owner’s policy will cover most, if not all, home-business needs. Such benefits include, but are not limited to:
- Coverage of:
- Damage to or loss of business equipment as well as other assets
- Liability for customer injuries
- Loss of critical records
- Malpractice or professional liability claims
- Loss of income
- Business interruption in the case of a power outage or natural disaster
- Protection when driving a personal vehicle for business purposes
The policy protects against a higher amount of loss than a homeowner’s policy rider or an in-home business policy.
The takeaway:
If you’re running a home-based business, you could find yourself exposed in terms of liability. Your business assets may not be covered under your homeowner’s policy if you find yourself facing unfortunate circumstances, such as a fire or burglary. Don’t make the mistake that so many other home-business owners do. No matter how small or big your home-based business may be, investing in insurance is always a wise choice.
Call us today to discuss your options.
