For many home-based business owners, the primary question isn’t how to insure their venture – it’s why they should insure the business. That might explain a disturbing statistic: About 60% of home-based business owners don’t have enough business protection, according to the Independent Insurance Agents & Brokers of America (Tweet This).
What that means is that those people are putting their businesses – and their homes – at risk, not to mention their professional and personal finances.
How much risk? That depends on the venture – a home day care, for example, faces a much greater risk of a devastating claim than a legal transcription service. But nearly every business comes with some kind of risk, and home insurance might only offer limited coverage for your business equipment – and little or no other protection.
Evaluating your risk
First off, ask yourself the following questions:
- Will your business have customers or clients who come to your house? This would include that day care mentioned above or a clothing alterations business.
- Does your business require special equipment? This could include a laptop and high quality printer or other electronics for a legal transcriptionist or freelance writer, as well as commercial kitchen equipment for a catering business.
- Will you use an automobile in any way? This could include making deliveries or taking trips to meet with clients.
- Will your business make or manufacture anything? This could include jewelry or food or another product.
Will you provide a professional service? This could include tax preparation or business consulting or plumbing.
If you answer ‘yes’ to any of those questions, then you need at least some business insurance for your home venture.
What coverage do you need?
It depends on how you answered those questions:
If customers or clients come to your home, you need liability coverage. A standard homeowners policy typically offers personal liability protection should a visitor to your home get injured on the premises and sue you. But if that visitor is there for business purposes, your homeowners insurance won’t cover the incident.
Your home’s contents, under a standard homeowners policy, are covered for theft and damage from fire, wind, and other specified perils. But there are strict limits – often $1,500 or less – for business equipment. If your equipment exceeds that limit, you’ll need business property insurance.
- If you use an automobile, you’ll need business auto coverage. Your personal auto policy likely will not cover you if you have a wreck while using the car for business. That means you could be on the hook for property damage, medical costs, and legal costs tied to a lawsuit involving the wreck.
- If your business makes anything, you’ll need product liability coverage. For example, if you ran a catering business and customers got sick from eating your food, you could be sued.
- If you provide professional services, you need professional liability or acts coverage. This helps if there are any malpractice claims against you.
Is there a package of coverage?
Yes, many providers now offer home-based business policies and allow you to customize your options so you have only the coverage you need. For example, if you don’t use a vehicle, you wouldn’t need business auto coverage. If your risks are high, you might upgrade to a business owners policy, which can offer more comprehensive protection from a variety of scenarios. This type of policy typically also offers business interruption coverage.
Finally, if your risk is small enough, you might consider riders to your home insurance policy. That could bolster your personal property coverage to include more protection for business equipment, for example.
How do I proceed?
Talk with an insurance agent about your business, its risks, and your coverage needs. If there’s a problem with your home venture, you don’t want to be part of that uncovered majority. There’s just too much at stake.
Carrie Van Brunt-Wiley, is the Editor of the HomeownersInsurance.com blogs.