With business insurance, be one of the 40%

December 02, 2013

If only 40% of home-based businesses are adequately insured, that means 60% are not. Use these tips to make sure you have the right coverage – or beef it up if you don’t.

Sixty percent of home-based businesses don’t have the right kind of business insurance or adequate coverage – or they don’t have small business insurance at all.  Whether this is because they believe a homeowner’s or renter’s policy covers them or because it’s not a priority, the results are the same: not enough help when you need it most.

Home-based entrepreneurs get little coverage from homeowner's policies, which typically don’t cover business liability, cybercrime loss or damage, business interruption protection, or business records loss or damage.  Plus, coverage is typically limited to $2,500 for equipment in the office and $250 for gear out of the office – the laptops and tablets most biz owners rely on.  Essentially, a homeowner’s policy is of little value to you as a home-based start-up.

But that doesn’t mean there aren’t risks that need to be covered!  If your cleaning lady steals a data-loaded hard drive or a visiting client slips on your porch and gets hurt, you’re going to need coverage – coverage not typically provided by a homeowner’s policy.

Fortunately, establishing reliable coverage isn’t hard.  You can choose one or more of the three basic types of home-based business insurance depending on your business.  If you’re not sure which is best for you, talk to an agent or contact us.

Rider or endorsement to an existing homeowner's or renter's insurance policy
This is the least expensive option, with minimal costs that generally add $2,500 of coverage.  An endorsement works by expanding your existing policy to cover your business as well and is good for entrepreneurs flying light – a one-person shop, without a lot of equipment or visitors, and not likely to suffer a major loss if there’s a fire or similar event.

Since endorsements are usually only available for home-based companies with annual sales of $5,000 or less, it’s not a viable option for many entrepreneurs, but perfect for side-project businesses and start-ups.

In-home business policy
In-home policies cover much more – things like the loss of critical documents or having the daily deposit stolen.  Issued by home insurers and specialty firms, this policy generally covers up to three employees and $10,000 in business equipment losses or bodily injury liability, and often comes with general liability coverage.

When considering an in-home business policy, find one that covers your business type in your state, as laws and rules vary.  And keep in mind that business owners often purchase extra coverage for loss of equipment use and accounts receivable.

Business Owner's policy
Entrepreneurs needing more than $10,000 of coverage should look into a business owner's policy (BOP), the comprehensive coverage used by brick-and-mortar retailers.  This policy covers much more than a homeowner’s policy rider or an in-home business policy, such as:

  • Loss of critical records
  • Liability for customer injuries
  • Damage to or loss of business equipment and other assets
  • Loss of income due to business interruption in cases of property damage causing power outages or due to natural disasters.

A business owner’s policy is best for businesses that need protection for business personal property and business income or have a contractual requirement to carry liability insurance for a landlord or a client or have rented equipment, which needs a loss payee clause. Some BOPs also protect you if you drive a personal vehicle for work if you purchase a Hired Non Owned Auto endorsement (HNOA).

What about Worker’s Comp?
And don’t forget Worker’s Compensation coverage.  Requirements vary from state to state, but in general you need Workers’ Comp coverage if your business has employees, regardless of worksite type.

Insuring your home-based commercial empire
How much and what kind of home business insurance do you need?  Base your property policy limits on the amount of loss you could face should something go wrong. Take an inventory of your home office equipment and software, then visit an office supply store to determine the cost of setting up a replacement office.  Add an additional amount to cover replacing data and vital papers and this will be the minimum amount of property insurance coverage you’ll likely need.

If you’re concerned about lost income resulting from covered damage to your home office, consider adding business interruption insurance, which covers lost business income following property damage up to the limits of your policy.