An estimated 12 million Americans operate on full or part-time business
from their homes, and that number keeps growing. Although savvy
and creative in their own specialties, these entrepreneurs, at times,
seem bewildered about how to insure their business against theft,
fire and liability. Some believe their homeowners policies cover
all their home business insurance needs. As a result, a lot of these
home business owners are uninsured.
Property and Liability Insurance
Business owners need both property insurance in case
they're robbed or a fire breaks out in their company's "headquarters"
and destroys equipment and inventory, and liability insurance
in case someone gets hurt using their product or services or is
injured inside their home or on their property.
The first tip for business owners is: don't assume your homeowners
policy covers your home business. It may, but probably only to
a maximum of $2,500 for business equipment in the home and $250
if it's off of the premises. It usually doesn't cover business-related
liability. For example, if a customer or supplier is injured on
your property, your Homeowners Insurance typically won't cover
that loss. Your homeowners policy also doesn't insure your inability
to collect your accounts receivable if your business records are
damaged, and it won't replace lost income if you cannot operate
your business due to damage to your home.
Insuring Your Business Against
One-fourth of all businesses that close because of a disaster,
never reopen. Small businesses are especially vulnerable, because
few of them have the resources or knowledge to assess disaster
risks and develop comprehensive mitigation and recovery plans,
according to the Institute for Business & Home Safety (IBHS).
There are three ways you
can buy the Home Business Insurance coverage you need:
- Depending on the type of business you operate, you may be
able to add an endorsement to your existing homeowners policy.
Some insurance companies offer a home day-care coverage endorsement
for people who operate a home day-care service for pay in their
home. Some companies will offer property and liability insurance
for "incidental" businesses operated from your home.
However, each company may define incidental differently. For
example, some companies consider an incidental business one
that grosses less than $5,000 per year.
- You can buy several individual Business Insurance policies
to provide the various coverages you need, such as Business
Property, General Liability and Business Income Insurance.
- Or you can buy a Business Owners Package policy designed for
smaller businesses, which combines the necessary property and
liability insurance coverages you need in a single policy.
Because home businesses keep popping up all over the country,
some insurance companies have begun to offer what amounts to a
mini-business owners package policy specifically for home businesses.
Some of these policies cover the loss or destruction of business
property on or off premises; the loss of valuable papers and important
business information; personal injury and advertising liability;
accounts receivable up to $10,000; money lost on premises up to
$5,000 and off premises up to $2,000.
Companies that offer these policies often require that you purchase
your Homeowners and Auto policies from them. With those policies
in place, your Home Business policy extends the amount of personal
property and liability coverage you have on your home to your
business. And if a fire or storm makes running your business impossible,
it'll cover expenses and lost income for up to a year.
These package policies cut the possibility of gaps and duplications
in coverage. But, unfortunately, they're not approved yet for
sale in all the states. The important point is to talk with an
insurance professional and get the most appropriate coverage for
your home business that is available in your state.
If you use a vehicle for your business activities -
for example, transporting supplies or products, visiting customers,
or ferrying employees or customers - you need to make certain
that your Auto Insurance will protect you from accidents which
may occur while on business. In many cases, your personal auto
policy - which covers taking the kids to see their grandmother,
picking up the groceries, or any one of thousands of personal
tasks - can also cover the business use of your auto. In some
cases, however, depending on your type of business and the kind
of vehicles you own, you may need to purchase a separate Business
Auto Insurance policy. A knowledgeable insurance agent or company
representative will be able to determine which approach would
be best for you.
Don't forget that you'll also need Health Insurance
to cover medical costs if you become ill or injured, and Disability
Insurance if you're unable to work because of sickness or injury.
If you have employees, you may want to consider looking into small
group insurance programs for your business. Call the National
Insurance Consumer Helpline at (800) 942-4242 if you have a question
about these and other types of insurance.
Compensating Injured Workers
Once you hire an employee, you may need to purchase
Workers Compensation insurance to cover what it will cost if the
employee is ever hurt on the job and needs medical treatment.
Workers Compensation coverage also supplements income until he
or she recuperates and can return to work.
If you've incorporated your business, Workers Compensation insurance
can also cover you in case you are injured at work. Since each
state has its own set of laws regulating when Workers Compensation
insurance needs to be purchased, you should check with your insurance
agent or your state's insurance department to find out how this
applies to your business.
An Umbrella policy offers you extra liability insurance
that pays for a loss when the limits of your underlying policy
are reached. So, if you're responsible for someone's injury that
requires $150,000 of medical treatment and the liability limit
in your underlying policy is $100,000, an Umbrella policy will
pay the additional $50,000.
Keep in mind that most personal Umbrella policies that are tacked
onto a Homeowners or Auto policy will cover liability stemming
from business activities and business property only if covered
by the basic policies. Always check your policy to see how it
defines business and business property, or ask your agent.
Finding an Agent
Instead of going it alone, home business owners should
assemble a cadre of advisers, including an insurance agent or
company representative. Make sure the agent or representative
you select is knowledgeable about insurance for your type of business.
Consider asking other home business owners, especially someone
who has a home business similar to yours, to recommend an agent
for you. Or check with the state or national trade association
that covers owners of businesses like yours.
The right agent will help you purchase the right insurance that
meets your financial needs now and can effectively advise you
on coverage as your needs change.
Ask About Discounts
Insurance companies frequently offer discounts to business
owners who install smoke detectors and security systems. Some
companies also offer discounts to persons who drive a minimum
number of miles each year. Be sure to ask your agent or company
representative if you're eligible for these or other discounts.
As Your Company Grows
As your company thrives, keep in touch with your insurance
agent or company representative. Just as you would let the insurance
professional who handles your homeowners insurance policy know
if you added a deck to your house or bought expensive home entertainment
equipment, so you should let the agent or company representative
know if your business equipment, inventory or operation is more
extensive than when you bought your policy. If you neglect to
do so and you have a loss, you may find that your policy has limits
far below the actual current value of your possessions.
State Insurance Departments
Insurance is regulated by the states, and every state
has a state insurance department. The head of the department is
usually called a commissioner or superintendent of insurance.
These departments can provide you with additional information
about insurance, including key insurance laws.