The biggest mistake a home business can make is assuming a homeowners insurance policy will cover their business. While business insurance riders can be bought on homeowners insurance, it is unlikely that full business losses are covered.
Homeowners's Policies vs. Business Insurance
Homeowners insurance usually limits business property losses to relatively low sums like $2,500. Typically this will not include any business losses incurred outside the home. Almost certainly it will not cover any liability connected with the business. While computers and peripherals cost much less than they did in the early days, it’s unlikely the equipment loss coverage under a homeowners policy will replace a catastrophic loss of business equipment—for example due to fire or theft.
Business Liability Concerns
Even home-based businesses that never see clients in home offices may be exposed to liability concerns. Sometimes contracts with particular clients include a requirement to demonstrate expanded liability coverage. State and municipal agencies may have a default clause in their contracts requiring what might seem a ridiculous amount of liability coverage, sometimes in the hundreds of thousands of dollars. Auto insurance coverage may not apply if you use your car at times for business purposes, particularly if a question of injury arises.
Costs and Coverages
For small, home-based operations, getting adequate office insurance need not be a high cost item. In the insurance field these policies are referred to as a Business Owners Package (BOP). A number of reputable companies sell them, either through local agents or the Internet. Often the cost of an annual policy will be less than $250. Premiums on such a policy should qualify as legitimate business deductions for tax purposes. The first step is doing a complete inventory of hardware, software, furnishings and anything else in your home office that could expose you to loss. Figure out replacement cost for everything involved to get a total. Add in an estimate of other items such as lost income in the event something damages your home office or house to the point that you are unable to work for a period of time.
Here are some things a good home business insurance policy should cover at a minimum:
- Business personal property on the premises
- Business personal property off the premises
- Valuable papers loss
- Business liability to include loss of income and extra expense involved in a temporary office location
- Medical expenses
- Fire/lightning/explosion legal liability
Coverage Limits and Where to Find Insurance
The default limits on this kind of policy probably will be more than adequate for most small home business operations. You may need to negotiate on the limits for property and business papers based on your estimate of maximum possible losses. You also have to decide how much of a deductible you are willing to accept. If your home business has employees, this will open additional potential areas for coverage, for example, worker’s compensation and disability-income.
Business insurance coverage is too cheap to neglect this essential part of doing business from the home. Check out the results from a web search on the term “Business Insurance Package” or talk to your insurance agent.
