Originally appeared on The Hartford: Small Biz Ahead
By Allie Johnson
If your home sweet home is also the headquarters of your small business, don’t make the mistake of assuming you can go without commercial insurance coverage. Many owners of home-based businesses don’t understand their risks.
Many small business owners who work from home, from consultants to online retailers to wedding planners, incorrectly assume that their home insurance has got them covered. But the reality is, most home-based enterprises need business insurance.
More than half of small businesses are based out of the owner’s home, according to the U.S. Small Business Administration. Many of those home-based business are underinsured, and some owners don’t learn what coverage they really need until after a costly incident occurs.
The fact is, homeowners policies are not designed to cover businesses. A typical home policy might cover business property damage only up to $2,500 on premises and $250 off premises. And a home policy likely will not cover liability if, for example, a customer slips and falls at your home office.
Insurance needs will vary based on the nuts and bolts of your business, so it’s a good idea to talk with an experienced insurance professional to determine what coverage to get for your home business. In general, these are your three main options for home-based business insurance:
1. Liability insurance for home businesses. If you don’t have much equipment to protect, you might need only a general business liability policy, says Al Ancheta, an independent agent who specializes in business insurance for Pinnacle Insurance of Minnesota. Even if you don’t think you need liability coverage, you probably do. For example, say you sell cosmetics and a customer stops by to pick up the lipstick she ordered. “What happens if she trips and falls?” Ancheta says. When your home insurance company learns she was visiting your house for business, the incident won’t be covered, he says.
2. A package policy to protect your business. A more comprehensive option is a three-in-one package of coverage known as a business owner’s policy (BOP). A BOP offers general liability coverage along with business property coverage that protects your computers, phones, office furniture and inventory from theft, fires and lighting or windstorms. A BOP also includes business income coverage. If you’re temporarily forced to close your business because of covered damage to your home, that coverage helps replace your lost income to help you meet payroll and other obligations to keep your business afloat. You can also add endorsements to you BOP to suit your individual needs. For example, you can add data breach coverage to your policy.
3. An add-on to your home insurance. In some cases, the owners of very small home-based businesses can simply add coverage, known as a rider, to a homeowners insurance policy. If you go this route, you pay extra on your home policy to get increased property coverage for business equipment, and possibly business liability coverage. For example, you might be able to bump up property coverage to $5,000 or even $10,000. This option typically is available only to small businesseswith low revenue whose clients or customers rarely visit the premises.
Consider Other Coverage
It’s also important to evaluate needs for other coverage based on your particular business. For example, if you have employees, you will need workers’ compensation insurance to pay for medical care and lost income for employees who get hurt on the job. If you occasionally use your vehicle for business, you’ll have to notify your auto insurance carrier and possibly pay extra. If you transport people, you likely will need to purchase commercial auto insurance.
Because home-based businesses are so diverse, small business owners must do the due diligence to make sure they’re adequately covered for the risks they face. “It all depends on how many moving parts your business has,” Ancheta says.
If you work from home as an employee — not an independent contractor — you may not need your own business coverage. It’s still important to investigate the situation and find out what coverage your boss has in place and if your home workspace is covered, especially if you’re meeting clients at your home office.
Once you’ve done your homework and gotten coverage in place, you can work more confidently knowing your home-based business is protected.