If you run a business from your home, you're not alone. You're also not the only small business that doesn't have adequate insurance to cover the business you're running out of your home office. According to a report from the Independent Insurance Agents & Brokers of America, almost 60 percent of home-based business owners don't have insurance.
As to the reason business owners don't have adequate insurance, they believed that they were covered in some capacity under their homeowner's insurance. They also believed that they were too small to worry about insuring their business. When starting a home based business, it's vital that you understand the details of the liability coverage you will need.
The Coverage for Home-Based Businesses
Your homeowner's insurance does little to cover your business in case of a disaster. In some cases, if you were to try to file a claim on your homeowner's policy, you'd be denied and coverage could be revoked. The policy isn't meant to cover damages to equipment used in your business, loss of records and data from a disaster or damage to buildings used in the daily operation of your business. This can include outdoor structures like a shed used as an office.
Reasons You Need Proper Coverage
Instead of trying to guess at what is covered and what isn't under your homeowner's policy, it makes more sense to purchase a business insurance policy expressly geared towards your type of business. While you might have home insurance with business cover, it might not be enough to cover more than a few thousand in damages or loss.
If you're running a consulting business out of your home that requires access to state-of-the-art computer and software systems, you could be out thousands of dollars if your home were to be robbed. That type of work system wouldn't be covered under your homeowner's policy.
A courier delivering packages for the operation of your business could slip and fall on the property. Any lawsuits from that would not be covered under the homeowner's policy you have for your property since he was there due to your business operation.
Stock and equipment held in a building on the property used exclusively for your business would not be covered if there were a fire. Insurance for home based business would be needed to reimburse you for the loss.
If you're in a business that might bring about lawsuits, your homeowner's insurance will not cover you in the event that a client sues you. This can include a hairdressing, consulting or legal profession.
Types of Insurance Coverage for a Home-Based Business
1. General Liability Insurance
This type of insurance will cover you in the event that the courier in the example above were to fall on your property. It would also cover you if there's damage to someone else's property. For example, if you are a landscaper who works out of your home, you can be covered if a client's garage or shed is damaged while you're working there. Claims of personal injury like slander or libel would be covered under this policy.
2. Errors and Omissions Insurance
This type of insurance is needed in the event that a client sues you for negligence. While you might believe you don't need the coverage since your work is stellar, it will cover you even if you are not at fault. You would still need to defend yourself against the allegations.
3. Property Insurance Coverage
This can often be part of the general liability part of the policy, but you will need to check with the insurance broker to be sure. There are a variety of insurance types associated with your business based on the type. You might have different general liability as a contractor who has a home office versus an IT consultant who works from home or a lawyer who has clients in the home.
4. Public Liability Coverage
If you have a home-based business that also runs events in the community, you'll need to ensure that you have the right coverage for those events. Running an event means that you're liable for the safety of all participants. If you hire a vendor that sets up a tent for the public event, that tent may fall and injure a person in the crowd. While you would certainly hold the vendor liable, the person will likely sue you over the injury.
5. Product Liability Insurance
If you have a home-based business that provides services, that's a bit different than one that makes products. You might be starting your own craft making business on the side and selling those products online. You'll need to carry product liability insurance in case there's a problem with your product that results in a lawsuit. You might want to search for online insurance coverage to find the right policy for the needs of your business.
Determining the Coverage Required
It's important that you dig deep into the world of insurance to figure out what's the best fit for your type of business. You don't want to skimp on the amount and type only to learn at the wrong time that you don't have the right policy coverage. As a sole business owner, your livelihood rides on the fact that you stay healthy too. You might consider adding health or disability insurance to your coverage too. It provides an extra layer of security in case there's a significant injury or scare with your health.
When you've started working out of your home, you might not think you're large enough to require insurance, but that's not the case. You should never assume that your homeowner's policy will cover any part of your business like the equipment or stock used in that business. It won't cover liability for anything associated with running that business either. The only way to be sure you're covered is to purchase business insurance that is geared specifically towards the type of business that you are running.