If you’re not working from home yet, you may be soon. For more and more Americans, their “commute” to work is from the kitchen or living room to the den or study. By some estimates, there are as many as 18 million home-based businesses in the United States, and that number is expected to grow rapidly.
Fact. Unfortunately, many of these home-based businesses, perhaps even most, do not have adequate insurance coverage. One study found that 60% of those who work at home may not have insurance for their business activities.
The study also found that most of those without business-specific insurance believe they are protected by their homeowners insurance.
Actually, a homeowners policy does offer some coverage for home-based business, but it’s minimal. Most homeowners policies provide a maximum of $2,500 coverage for business equipment (computers, fax machines, etc.) in the home.
If that sounds like it’s enough, it probably isn’t.
If you’re sued because of your home-based business activities – the company that hired you as a consultant believes your advice was dead wrong; the computer equipment you “fixed” doesn’t work; the cookies you baked made someone ill – your homeowners policy won’t protect you.
Further, if you have to temporarily shut down your business for whatever reason, the homeowners policy won’t allow you to recover the income you lost because of the shutdown.
Why?
If all homeowners insurance policies provided coverage for business activities, the cost of the policy would have to be higher to account for this increased risk. The result would be millions of homeowners that don’t have a home-based business paying additional premium for those that do have a home-based business.
Instead, the insurance industry created several options for home-based businesses to provide the desired amount of coverage.
- If your business is eligible, you can add an endorsement to your homeowners insurance policy (essentially a modification to your homeowners policy) that will provide the coverage you and your insurance company agree to
- If you can’t endorse your homeowners policy, you can get a separate Business Insurance Policy customized for you and your business
What’s the scope of your business?
Some home-based businesses don’t need much insurance beyond a homeowners policy, particularly those businesses that have minimal equipment, don’t have visitors, don’t often visit clients or those that offer fairly straightforward products.
This is the type of situation where it might make sense to add coverage to your homeowners policy for your business.
Tip. Often, for as little as $14 a year, you can double the limit of coverage for business equipment from $2,500 to $5,000.
Note. But be aware that these additional coverages, known as endorsements, don’t protect you if you are sued as a result of your business activities. Also, the endorsements usually don’t cover income lost.
Some insurance professionals strongly believe that business-related endorsements to homeowners policies aren’t a good idea for any home-based operation.
Tip. Often, for about $750 a year, you can purchase a policy that offers $10,000 of coverage for business property, and includes business liability coverage with limits of $1 million (if this sounds like a lot of coverage, it really isn’t: most businesses carry liability coverage with limits of at least $1,000,000).
The most extensive coverage for home-based businesses is available in a Business Owners Policy, which insurance people call a BOP. If you stock a lot of inventory, manufacture fairly complex products or provide professional services where there is a significant risk of being sued by disgruntled customers, a BOP is probably the best option.
Note. If you’re providing any type of advice or performing work as a consultant (think CPA, financial advisor, business consultant, etc.), you very likely need Professional Liability, often referred to as Errors & Omissions Insurance.
Depending on the limits of coverage you need for property and liability, BOPs can cost anywhere from $500 to more than $5,000 annually.
Tip. No matter what type of coverage you choose – whether it’s an endorsement to your homeowners policy or a BOP – you and your agent should evaluate on a regular basis, at least once a year, whether your insurance is adequate.
As your business grows, it’s quite possible it will outgrow your insurance coverage. The bigger your business, the higher limits of property and liability coverage you need.
If you’d like to learn more, contact one of our Licensed Advisors . We’re here to help.