More than 50 percent of businesses in the U.S. are based out of the owner’s home. If you own or are starting a home-based business, you’re in good company. But do you have insurance for the business? Roughly 60 percent of home-based businesses lack sufficient business insurance.
Many people who work out of their homes may simply have given little or no thought to insurance as they ramp up the business. Others may assume their home insurance covers anything that happens in their homes, be it business or personal.
Homeowner Policies May Not Cover Business
In fact, many homeowner policies do not fully insure your business needs. A delivery person suing for an injury incurred on your premises, for example, is not likely to be covered by a homeowner policy. Many people whose homeowner policies cover accidents on their premises are surprised to learn that an accident suffered by someone visiting for business purposes would not be covered by their existing insurance. An insurance company may well refuse the claim if the person was in your residence for business purposes only.
Data breaches and technology failures related to work will not be covered by a homeowner policy, either. The very same technology that makes so many work-from-home businesses viable has opened up a range of business equipment and security issues that make insurance a very good idea. Security is a particularly pressing concern because hacking and security breaches are surprisingly commonplace in businesses both large and small.
After all, it’s not impossible that a client could someday bring suit against you for a data breach that compromises client security, for example. You could be sued for leaks of proprietary information if you use client data or client lists, and working with many clients requires such use.
Even if a data breach affected thousands of computers, your homeowner policy is unlikely to cover loss or damage for business use.
Technological failures can also result in damage to your business, including security and lost income for you and any employees. A business owner policy can cover those eventualities — but a homeowner policy will not.
Relying on a homeowners’ policy can be risky for other reasons, too. Say, for example, that you run a sales-based clothing business and have routinely been keeping inventory in your garage and attic. You assumed your standard policy would cover this because it’s in your home, right?
If an accident, flood or fire destroys part of the inventory, your insurance company may refuse to honor the claim if the business you run out of your home was never disclosed. In fact, they may even consider your operation of a home-based business a violation of your homeowners’ policy terms.
Other people may assume they don’t need home-based business insurance either because their business is housed in an office outside their home or they work for another company and work remotely from home only occasionally. The average U.S. employee works remotely two days per month.
But if you work at home some of the time, it may be prudent to purchase business insurance. If you suffer a work-related injury at home, for example, your company may not pay workers’ compensation insurance. You might be liable for business equipment damage or data security breaches.
What to Insure
You need to think about business insurance if you have a home-based business or work from home occasionally.
You need business insurance for exactly the same reason you need insurance for anything else. People buy car insurance for two reasons, after all: 1) Your car could be damaged or stolen and 2) Other entities — whether people, organizations or property — could suffer damages for which you’d be liable. Insurance for a home-based business works the same way, but in place of “car,” read “business” or “property.”
Insurance is a form of financial protection against loss. You have insurance because the cost to replace your business goods or services, or the cost of damages to another entity may be high or not a cost you want to bear alone.
But before you decide on any insurance policy, think about what you have to insure that could be damaged or lost. Potential categories include:
- Inventory. Do you have items for sale stored in your home? Do you have items being crafted, in process, or partly developed?
- Business equipment. Includes desks, computers, printers, and any specialized equipment for your type of business.
- Data. Data such as client lists and relevant documents need to be insured. Are they easily replaceable if lost? Could a client bring a suit against you for breach of security if they were compromised?
- Intellectual property. Are you developing an idea, a marketing campaign or a piece of equipment? Are you developing patentable material? If so, you may want to insure against any loss of, or damage to, your intellectual property.
- Premises liability. Do other people come to your home to for business-related purposes? This could be construction people building an addition to your office, customers trying out cosmetics, or the UPS carrier. If they injure themselves, you could be liable.
- Workers. Do you employ people in your business? Do they work in your home occasionally or all the time?
Think about the reasons for buying insurance. Inventory, for example, can be damaged or lost via theft, fire, or flood. So can business equipment and data. Do you have adequate control over all these possible eventualities? Is your home safe for the people who visit for business-related activity or who work there?
Types of Policies
Now that you’ve considered what you have to insure, explore the types of policies available to business owners. Review the replacement cost of any inventory or business equipment as part of choosing a type of policy, as replacement cost is a key determinant. Consider your degree of potential liability and potential costs.
1. Riders to Homeowner Policies
While relying solely on homeowner policies is not the best idea, solopreneurs may find their needs sufficiently covered with a rider to a homeowner's policy. Broadly speaking, premium costs are roughly $100 annually for about $2,500 of additional coverage.
2. In-Home Business Policy
An in-home business policy will cover a number of potential losses up to $10,000. The cost is around $250 to $500 annually.
3. Business Owners’ Insurance
Business owners’ policies should be strongly considered by businesses who need more than $10,000 of coverage. They cover everything from damage or loss of business equipment to liability for injuries. Some policies will insure up to three employees. Costs are roughly $500 annually for more than $10,000 in coverage.
Maybe it goes without saying, but be sure to read the fine print for every policy. Coverage and exclusions always vary. Discuss matters you’re unsure about with your insurance agent.
Although many home-based business owners don’t think about insurance, it’s prudent to consider. Businesses are subject to loss, damages, and injuries that are not generally covered by homeowner insurance policies. Consider the replacement costs of goods and services as well as any potential liability you may bear. Doing so will help you choose the policy that’s right for you, your business, and your clients.