While running a home-based business has its perks, it also comes with potential risks that your homeowner’s policy will likely not cover.
These can range from slip and fall accidents to exposure from a data breach.
More than half of home-based businesses don’t have adequate business insurance coverage, which makes knowing what your policy covers and assessing your risks even more critical.
“A lot of home-based business owners don’t think they need some type of coverage in addition to their homeowner’s insurance,” says Loretta Worters, vice president of media relations for the Manhattan-based Insurance Information Institute, an educational organization.
They think a homeowner’s policy is enough when, in fact, its coverage is usually limited to perhaps a few small items such as a printer or fax machine, she says.
A survey conducted by the Alexandria, Virginia-based Independent Insurance Agents & Brokers of America found that nearly 60 percent of the home-based businesses surveyed didn’t have proper business insurance coverage, and when asked about the lack of insurance, nearly 40 percent said they thought they were protected by some other type of coverage.
“You really have to read your policy,” says Madelyn Flannagan, the group’s vice president of agent development, research and education.
Some homeowner’s policies offer up to $2,500 of coverage on business property, she says, but the larger issue “is there is no liability coverage,” she says.
It also wouldn’t cover you for substantial property loss, which accounts for the bulk of claims in home-based businesses, says Flannagan.
The type of insurance you need varies, depending on what type of business you operate, what potential risks your business may face, the number of employees and whether customers enter your home, says Worters.
Glenn Goldberg, chief executive at Parallel Communications Group of Oceanside, a tech-focused PR firm based out of his home, elected to buy a professional liability policy that protects the company against intellectual property and disclosure claims.
He has yet to use it in the 12 years he’s had it, but it would protect the firm if the information provided by a client were erroneous and could be perceived as “actionable after dissemination.”
“It’s never happened, but it’s just a safeguard,” says Goldberg, who says this coverage costs less than $1,000 a year.
Regardless of what added coverage you assume, you must let your homeowner’s policy carrier know you’re operating a business out of your home, says Angela DeChiara, senior vice president and director of commercial lines at Woodbury-based SterlingRisk Insurance.
If you don’t and a claim arises, the carrier may not acknowledge the claim at all, she says.
There is an endorsement you can add onto your homeowner’s policy to cover some business expenses. The client must notify the carrier to see if this option is available, she says.
If they want more comprehensive coverage, it pays to consider a business owner’s policy, which covers your property as well as casualty claims by others, she says. This would offer liability coverage for products as well as slips and falls and also provide additional coverage such as theft and business interruption, says DeChiara.
Consult a professional to assess options and get guidance and clarification on how a policy works, says Anthony J. Vlachos, president of Islandia-based WizdomTower Risk LLC, which offers property and casualty insurance.
Review your current policies and coverage and pay close attention to any exclusions the policies may have, he says.
Some things to consider as a home-based business, says Vlachos: How much is your equipment worth? Conduct an inventory, listing everything you use to operate your business. Does the service or product you provide create extra liability? Do you stock inventory, and if so what, .
All things considered, a business owner’s policy is “the most comprehensive property and liability option,” he says.
More than half of all U.S. businesses are home-based.
Source: U.S. Small Business Administration