By Allison Hess
60% of home-based business owners don't have adequate business insurance to fully protect their assets, according to a national study by International Communications Research. If something happens to the business, improper coverage can leave individuals in significant financial trouble, including putting their own personal assets at risk.
It’s common for small business owners working out of a home office to assume that their business is covered under their homeowner's or renter's insurance… but that assumption is greatly mistaken. In fact, most homeowners’ policies limit the amount of business-related coverage, and often the limit is so low that it’s not enough to even replace a laptop.
If you own any sort of company—including and especially a home-based business—you need adequate business insurance.
WHO NEEDS BUSINESS INSURANCE?
The U.S. Census Bureau, reported by Forbes, found that 52% of the 28 million small businesses in America are home-based. This includes every home-based business owner, like consultants, photographers, accountants, eCommerce sellers, and more. Moreover, according to the Freelancers Union, there are nearly 54 million freelancers in the U.S, presumably working from home.
That means there are millions of Americans working out of their homes… millions who aren’t fully protected if they don’t have the right business insurance.
What would happen if your home office got destroyed and your homeowners’ policy didn’t cover it? Consider the cost of equipment, data, security breaches, and lost income from any sort of natural disaster or incident. Then further consider the immense lawsuits and liabilities if a client or employee were injured while dealing with your business.
Without proper business-coverage, the cost of damages could put you out of business—or worse, attack your personal assets.
Moreover, there are additional risks to a home-based business. Small businesses are easy targets for lawsuits. Just a single suit can run your business into the ground.
You need to protect what you’ve built.
DO YOU NEED BUSINESS COVERAGE?
If you have a small business, you definitely should consider business insurance. Homeowners or personal umbrella policies typically don’t cover incidents that take place while conducting business. In this way, you need a separate set of insurance for incidents that occur on “working time” and in “working space.”
You need business insurance to cover the following situations:
A client gets injured in your home while conducting business
An employee gets injured while on the clock
You manufacture a product that could be a liability
You do business in another person’s home
Your business property is damaged or stolen
You have a security breach or tech failure that could cause data loss
DO YOU NEED A RIDER OR BOP?
There are two basic types of insurance for a business based out of a home office: a homeowners’ rider and a business owner’s policy.
A rider to your homeowners’ or renters’ insurance will provide a limited amount of additional coverage to help protect from certain business-related incidents. Riders or endorsements tend to be the most inexpensive option. However, the limits of a rider tend to be low and could still leave you with significant, uncovered liability.
In this way, riders are best for one-person businesses without valuable equipment or home visitors (like clients or employees). Examples of individuals who may be eligible for endorsements include music teachers, tutors, jewelry designers, real estate agents, photographers, and freelance writers.
Business Owner’s Policy (BOP)
A BOP is more comprehensive coverage for home-based companies, and they cover a higher amount of loss than a rider. These business policies tend to protect against:
Liability claims and lawsuits
Damage to equipment/data
Unexpected business interruption
A BOP is necessary for anyone who conducts business with clients and employees both inside and outside the home. It’s also essential for those who manufacture products, hold and sell inventory, have physical equipment and are at a risk for liability.
Basically, a BOP is a necessity for any business owner who wants to protect their business and personal assets from the unexpected events of the working world.
WHAT TYPE OF INSURANCE DO YOU NEED?
Within Business Owner’s Policies, there are different forms of insurance coverage that protect against certain types of incidents. The main types include property insurance, liability insurance, business auto insurance, workers’ compensation, business crime insurance, errors and omission, and business interruption insurance. Talk to an insurance agent to see which types of coverage will work best with your home-based business policy.
Business property insurance helps protect your property or equipment that is for your business but held in your home. These items tend to be excluded from the homeowners’ policy because they are used for business, such as paperwork, computers, equipment, data, and more. This coverage can also include damages from disasters as well as theft and vandalism.
Say for example your house had a fire. Your homeowners’ policy would cover the damage to your home… but likely not your home office. In this way, if your business items were destroyed in that fire, you would need business property insurance to cover any damaged property that belonged to your business.
General Liability Insurance
General liability is the most versatile form of business liability insurance. It will help pay for any potential legal expenses if someone is injured in your home or by your products or services. General liability can also help cover legal expenses to defend against libel, slander, copyright infringement, and other legality concerns. Basically, if your business is sued for some reason, general liability is there to help cover the expenses.
A typical BOP will combine general insurance and business property insurance for the most comprehensive basic coverage.
Business Auto Insurance
If you are using your car or another vehicle for business purposes, it may not be covered under your traditional auto coverage while on the road for professional purposes. In this way, you’ll need a separate business or commercial auto insurance to protect against any sort of injuries or damages that occur on the road while “on the clock.” This can include accidents while driving to a meeting, making a delivery, or driving a client.
Basically, if you have any problem while using your car for business, commercial auto insurance can help pay for repairs to the other party’s vehicle or their medical bills if injured.
Business auto insurance is especially important for those hustlers working for a rideshare company like Uber or Lyft. If you get into an accident while driving, you may be responsible for damages to the car, your passengers, or any other parties. Be sure to talk to an insurance agent about rideshare concerns for your BOP.
If some sort of incident causes your business to halt or delay, business interruption coverage can step in. This will help pay you a stream of income for a certain period of time, so you can avoid negative cash flow while your business is interrupted.
Workers’ Compensation Insurance
Workers’ Compensation is required in most states for any business with employees. Workers’ comp provides benefits to employees who are injured or have health concerns from employment. It can pay for treatment, disability, and death benefits. It’s important to know your state’s regulations to be sure your home-based business is compliant and your employees are well cared for.
Business Crime Insurance
Business crime insurance helps cover any sort of property loss against embezzlement, forgery, robbery, security threats, breaches, or any other type of crime. You will want to consider adding this to your insurance package if you have highly sensitive data, patents, or protected information, systems, and processes.
Errors & Omission Insurance
Errors and Omission, otherwise called Professional Liability Insurance, can help pay legal expenses if you are sued for an oversight, mistake, undelivered work, or missed deadlines. Basically, it covers any lawsuits where your business made some sort of error that resulted in a negative response and profit loss for your client.
There are other types of industry-specific business insurance you may want to consider as well. Be sure to shop around and talk to an Emerson-Prew agent who will take all of your home-based business needs into account to find the perfect coverage.
THE BOTTOM LINE
Don’t make the mistake of assuming that your homeowners’ or umbrella policy will cover any business-related damages and liabilities. If you want to safely grow your business without putting your assets, family, or company in harm’s way, then you need adequate business insurance.
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