Running Your Small Business From Home?

February 16, 2012

Your homeowners’ insurance policy won’t necessarily cover losses related to your small business.

In the past couple of years many Americans have chosen to set up businesses at home. There’s been a 25% jump in those who now work from home, according to research by Interbrand 2009 . It’s great to use your house as your business office: it makes financial sense when you’re starting out and gives you the flexibility to juggle work and family life. But, it can also create risks that you may not be aware of. Your homeowners’ insurance policy won’t necessarily cover losses related to your business, such as a fire in your former-garage-now-office that destroys your paper records or computer. In fact, if you don’t declare that you run a home business to your insurer certain coverages in your homeowners’ policy may be unavailable following a loss. Many home-based businesses do not carry business insurance, even though the cost of liability insurance can be very little, less than $25 a month. Also, just because your business is small, it’s wrong to think that it doesn’t run many of the same risks as much larger operations, such as being sued by an unhappy client or trading partner or facing a lawsuit as the result of someone being injured on your property. Most small business owners don’t have the time, resources or expertise to defend claims on their own, so having the right liability insurance is a extremely important.

So when should you buy small business insurance? If you’re subject to self-employment tax, have to file a schedule C, and are filing a small business tax return then you’re technically running a small business. There are two types of coverage that are essential for small home-based business: general liability insurance and professional liability insurance. If you have employees, it’s also worth considering workers’ compensation insurance coverage. There’s also likely to be a range of specialized coverages for your industry that would be worth checking out, too. Being insured gives you the peace of mind of knowing that, if you’re ever faced with a claim, your insurer will pay for your legal defense and the cost of covered claims, up to your policy’s limit. That way, you can concentrate on what you do best: making your home business a success.