You’ve always dreamed of starting your own home-based business. You have a perfect idea and the means to do it, so you’re finally ready to get started. However, before you do, you need to understand the liabilities associated with running a home-based business. Your current home owner’s or renter’s insurance won’t completely cover liabilities related to your business. To prepare for any issues that could occur, you’ll need proper insurance coverage that’s right for your business needs.
Understanding Your Options
Generally speaking, there are two different routes you can take to insure your home business. According to the Insurance Information Institute, the right option for you will depend on your type of business, your annual receipts, and your coverage needs.
● Adding Endorsement To Your Homeowners Insurance – You can opt to add additional property coverage and limited liability coverage to your current homeowner policy. Most insurers limit this option to businesses with roughly $5,000 in annual receipts.
● Purchasing Small Business Insurance – This type of coverage includes some of the same features as larger commercial policies with lower policy limits and premiums. You can insure your business property and choose general liability coverage to suit your needs. Many small business insurance providers offer business owner's policies (BOPs) that conveniently combine a variety of coverage in one policy.
Coverage To Consider
Understanding insurance coverage options is important for every business, even if you own a small, home-based business. Your business may have fewer liabilities than large corporations or even brick- and-mortar small businesses, but there are still risks. To account for these risks, you may want to consider the following insurance types:
● Commercial General Liability – Commercial general liability insurance is an essential form of business coverage, even for home-based businesses. Unlike your homeowner’s policy, it will cover bodily injuries and property damage involving clients and employees conducting business on or off your property. It also covers advertising injuries such as slander and libel.
● Commercial Property Insurance – This policy will cover your business property against loss or damage. It includes the equipment you use to run your home-based business, such as computers, printers, and furniture.
● Business Interruption Insurance – Business interruption insurance covers lost income and operating expenses should your business be forced to suspend activities due to issues such as a flood or fire. Its coverage can include temporary relocation, payroll, taxes, and loan payments. You should note that standard business interruption insurance does not cover closures due to pandemics, viruses, or bacteria.
● Errors And Omissions – Also called professional liability insurance, errors and omissions insurance protects against liability claims resulting from unintentional errors such as incomplete advice or accidental contract violation. Coverage includes defense costs and any client damages awarded in court.
● Product Liability – If your home-based business makes or sells a product, product liability insurance will cover your business for damages or liabilities associated with the manufacturing, design, or sale of your product.
● Professional Liability – Professionals providing services within their home should have professional liability insurance. It can protect you and your clients against potential negligence by protecting your personal assets, paying for defense costs, and compensation for damages suffered by a client.
● Workers’ Compensation Insurance – Workers’ compensation insurance is required by most states and is often dependent upon your number of employees. This policy will provide benefits to employees should they suffer a work-related injury or illness. It will cover medical bills, lost wages, and other recovery costs. However, if your home-based business does not have any employees, you may not be legally required to have workers’ comp as it is not required in some states for the business owner.
● Business Vehicle Insurance – Businesses that use a vehicle for deliveries, visiting clients, or other business purposes should consider business automobile coverage. Should you or an employee be in a car accident, your personal auto policy likely won't fully cover the damages and liabilities of a business vehicle.
Understanding Your Individualized Needs
When considering how to insure your home-based business, there are several factors you should take into consideration. If your additional insurance needs are simple and your general liability is limited, you may only need to add coverage to your current homeowner’s policy. However, if your business employs multiple people, sees business-related visitors, or offers numerous goods or services, you may need to invest in greater coverage options. Take the time to investigate your business needs and correlate the proper coverage.
Tailor Your Insurance For Your Unique Home And Business Risks
A home-based business involves a unique combination of business and personal liabilities. Because homeowner’s and renter’s insurance policies don’t fully cover home-based businesses, you’ll need additional coverage.
With the numerous potential liabilities every business faces—even home-based businesses—it's in your best interest to have some combination of policies. Contact an insurance carrier with policies specific to home-based businesses to find the right coverage for your needs.
