A few weeks ago, I had an insured call up the office because she planned on closing down her shop. When I say closing, she was closing the physical location and moving her highly successful business to her home. She had built a nice little office out on their acreage and could operate the florist business without the overhead that renting a space creates.
As she was telling us her plan, she asked us the million dollar question that’s been asked so many times.
“Well, won’t my homeowners insurance cover me now that I’m working out of my home?”
I went to a fancy insurance class a few years ago. The instructor got up and was discussing home based businesses in regards to insurance. Standard policy forms often stop providing coverage if you make $10,000 or more from the business. It also won’t provide coverage for certain businesses.
Doing mold and asbestos testing in your garage/laboratory?
You can probably count on your homeowner’s insurance company running for the hills. Not only will your homeowner’s insurance not protect you, but your home-based business activities can actually void your home insurance. Home insurance purpose is to protect people's homes and personal liability. Using the home for other purposes that your insurer is not aware of, such as operating a home business, may invalidate your policy.
WHAT’S MY SOLUTION?
Depending on the business - it may be the best option to purchase a separate business owners policy, also known as a BOP. The cost varies depending on the type of business, gross sales, payroll, and a few other factors, but can typically be pretty reasonable. This is something ECI Insurance can help you with. Our expert small business unit is ready to help you find a solution that fits your needs.
WHAT KIND OF INSURANCE DO I NEED?
The answer depends on the type of business you’re operating. You may need one type of insurance or you may need several. It’s worth noting that insurance companies now offer reasonably priced, home-based business insurance packages that include different types of coverage. Here’s a few that you may need:
- Business Property: While many business owners rely on their home insurance to cover damage, loss, and theft of property, all home-based businesses should have business contents insurance in addition to the contents and or property insurance provided by the owner's home insurance.
For one thing, look around your home office and make a quick estimate of how much it would cost you to replace the equipment surrounding you. Most homeowner's policies have a contents limit that would easily be exceeded by claims for business equipment such as cell phones, laptops, printers, and such in the event of a loss. How much of your home office equipment would you be able to replace for that amount if it was stolen?
For another, does all the business equipment you use to stay in your home all the time? Business equipment will only be covered by your homeowner's policy while it is on your premises. If you have a laptop or mobile device that you use outside of your home, you'll need separate contents and property insurance for it.
- General Liability: Another type of insurance that all home-based businesses should have is additional general liability insurance. If your aunt is visiting and falls and breaks her leg, your homeowner's policy will cover it; if a client is visiting and falls and breaks their leg, it won't. General liability insurance covers injuries to clients and employees on your business premises and elsewhere.
Whether or not you need other types of insurance depends on what kind of home business you're running.
- Business Vehicle: For instance, do you use your vehicles for business use? If so, you need to have your vehicle properly insured for business use to cover any damage to your vehicle and to cover your liability to others if you're involved in an accident.
- Product Liability: Does your home-based business involve selling a product? Then you should consider getting product liability insurance to protect your business from liability resulting from the product's nonperformance.
- Professional Liability: Does your home-based business provide services? If so, you will want some kind of professional liability.
Professional liability insurance protects both you and your clients. If a client claims to have suffered damages through your actions as a professional, your professional liability insurance will shield your personal assets and pay for your defense against such a claim. Such coverage also ensures that a client who has suffered damages will be adequately compensated.
There are many different types of professional liability insurance that home-based business owners may need. Malpractice insurance protects you from damages caused by a treatment that goes wrong. While we immediately tend to think of professionals who provide medical and health-related services such as doctors, dentists, and physiotherapists, when we think of malpractice insurance, there are actually many other home-based practitioners who may need such insurance, ranging from hairdressers to dog groomers.
- Errors and Omissions: If your home-based business involves being paid to give professional advice, you need Errors and Omissions Coverage. If a client claims that he or she has suffered damages because your advice was inadequate or incomplete or because of a negligent act on your part, error and omissions insurance will cover your defense and the damages awarded to the client if the case goes against you.
And if your home business involves providing services at client sites, you may need completed operations coverage to protect you from liability that could arise after you have left a client's premises, and starts to use whatever you were working on and an injury or damage occurs.
Home-based business owners who depend upon their business as a source of income should consider buying disability insurance, which will cover your lost income if you're disabled and unable to carry on your business.
- Business Interruption: You may also want to consider purchasing business interruption insurance, which will cover your lost revenue if you're forced to suspend your business activities because of fire, flood or other disasters. (Having a disaster plan is always a good idea too just in case.)
Want your questions answered from ECI? Contact us by text or phone at 405-373-2977.