Is yours a home based business? You’re not alone if that’s the case. More than half of the businesses in the United States are based out of the owner’s home, with more being added every year, according to research by the Small Business Administration.
If so, is yours also one of the 60 percent of small office home office businesses that lack adequate business insurance, according to the Independent Insurance Agents & Brokers of America?
Homeowner’s Policies Do Not Cover Home Based Businesses
As a business owner operating out of your home, it’s likely that you assume your homeowner’s policy provides sufficient coverage. It doesn’t.
In reality, homeowner’s policies carry little or no coverage for businesses and some insurance companies may even invalidate your policy if you file a business-related claim.
If your homeowner’s policy does carry business coverage, the amount is probably very limited: $2,500 on the premises of the home based business and $250.00 off the premises is typical.
When it comes to homeowner coverage for small office home office businesses, the property section of the policy is not designed to cover assets owned by the business.
That means there is no coverage for:
- Buildings (such as an outdoor shed) used for business purposes;
- Loss or damage to business records or data;
- Loss of income that results from a business shutdown caused by physical loss to business property.
Reasons You Need Home Based Business Insurance
While you should read your homeowner’s insurance policy to determine what is covered and what isn’t, it’s smarter to consider purchasing policies expressly designed to cover small office home office businesses.
Consider the following scenarios as reasons:
- You are an IT professional who runs a consulting business out of your house. What happens if your home is robbed and all your expensive computer equipment is stolen? You may find that it is not fully covered by your homeowners’ insurance because it is considered business property.
- The UPS deliveryman is leaving your home based architect office and slips on some wet steps, injuring his back. Your policy may not pay for his injuries because your insurance does not cover business deliveries or any third-party injury claims for that matter.
- You run a landscaping business out of a building adjacent to your home. It catches fire and your equipment is burned. Think your homeowner’s policy covers such an occurrence? Think again.
- As an accountant, you advise a client on a financial matter that ends up costing her money. She files a lawsuit as a result. There’s no way a homeowner’s policy comes close to touching that.
These are but a few of the many reasons it’s wise to purchase small office home office business insurance.
Home Based Business Insurance Options
As the owner of a home based business, you have several options when it comes to business insurance.
Rider to a Homeowner’s Insurance Policy
The least expensive home based business insurance is an add-on or rider to your existing homeowner’s policy. The cost is minimal — as little as $100 a year — but it provides some additional coverage.
This type of insurance might be appropriate for a one-person business with little equipment who does not have visitors or deliveries coming into her home. But it is the lowest bar that could be set, and other equally affordable options are better.
General Liability Insurance for Small Office Home Office Businesses
One such option, general liability business insurance, protects you from:
- Claims due to injury of a third-party (the ill-fated UPS delivery driver, for example);
- Claims of personal injury (libel and slander);
- Damage to another party’s property or premises rented to you, such as a temporary office space, storage building or conference facility.
Professional Liability Insurance for Home Based Businesses
Professional liability insurance — otherwise known as errors and omissions insurance or E&O — should be part of your home based business insurance policy matrix. This policy covers you in the event your business is sued for negligence, even if you are not at fault.
Business Owner Insurance for Home Based Businesses
Business owner insurance — also known as a business owner policy or BOP — may be your best option. It provides the most comprehensive coverage, including general liability, protection for business equipment or data, business interruption and professional liability claims.
Property insurance is often included as a part of general liability insurance, but check with your broker to be sure, recommends the SBA.
Life, Health and Disability Insurance
As a home based business owner, you should consider adding life, health and disability insurance to the mix, both for you and your employees. It’s an extra level of protection should you suffer an injury or, worse, death. Plus, it’s a nice incentive to offer when hiring.
Here are two words of advice:
Don’t be penny wise and pound foolish when it comes to covering your small office home office business. With a little shopping around, you can find affordable business insurance coverage to suit your needs.
Don’t be ignorant regarding insurance, thinking that your homeowner’s policy will suffice to cover your business. Ask your agent and find out what’s included and what’s not.
The bottom line: Don’t leave yourself or your home based business vulnerable. With minimal effort and reasonable expense, you can rest easy knowing you have the necessary coverage.
Home Based Business Image via Shutterstock