Many home-based business owners are unaware that their rental, homeowner, or personal auto insurance policies do not protect their home business operations and equipment. It’s an oversight that can turn into a costly mistake down the road. Learn why and how to insure your home business against future loss, liability, or a disruption in operation.
Why You May Need a Specific Insurance Policy for Your Home Business
One challenge home based business owners face as they grow and develop their operations is that they forget to treat their businesses like they would a business based outside of the home. The term “home-based business” has a certain informal ring to it, and it often entices those who set up shop at home to skip some very necessary costs and procedures.
Moreover, many home-based business owners erroneously believe that their homeowners or rental insurance policy will cover their home office and any equipment used there in the event of a sudden emergency or catastrophe. This false sense of security prevents them from properly looking into the matter and exercising their full due diligence.
The truth is that a typical homeowner’s policy may only cover up to $2,500 for office equipment and furnishings, and it does not cover the loss or damage of business records, supplies, and inventory, damages caused by business interruption, or business liability. It also will not provide coverage if something happens to you or your equipment while you are on the road.
Deciding What Kind of Business Insurance Coverage You Need
There are several factors to consider when deciding what type of insurance coverage you will need for your home business. For starters, take an inventory of your existing equipment and software, and calculate its current value. That is the minimum limit of property insurance you will want.
Next, consider your “hard” and “soft” data. Your hard data includes physical paper printouts and receipts, whereas soft data refers to any company data that you may be storing on the home office computer. (As a side note: if you have any sensitive data stored on your computer make sure that you have a secure, off-site, backup data storage solution in place. Loosing years’ worth of vital customer information can spell the end for your business, if not expose you to a possible lawsuit.) Take into account all of the potential ways you can lose vital business papers and electronic data when deciding which insurance plans to get.
Finally, consider how much income you stand to lose in the event that your home office is damaged or inaccessible. This includes not only the loss of actual sales, but also the loss of supplies and inventory. Where the possibility exists for a substantial loss of income if the home office is no longer available, then you may want to consider business interruption insurance.
There are some other factors to consider as well, such as:
- Will a vehicle be used in the business for any purpose?
- Will a professional service be provided?
- Will business visitors come to the house?
- Do you have any employees?
After you’ve thought about these factors, make sure you discuss your options with a qualified insurance professional. He or she can help you get the best rates and the best package to suit your specific needs.
What Kinds of Insurance Options Exist for Home-Based Businesses
As the number of people who work from home has increased (a trend reinforced by a significant surge in telecommuting arrangements), it didn’t take the insurance companies too long to figure out that they had a new, potential market on their hands and to devise products that would fill this demand.
Recently, many insurers are starting to offer “endorsements” or policy riders on standard homeowner policies that covers business-related loss. The home business endorsement increases the coverage for property damage to the limits of Coverage C of the homeowners policy, which is 50% of the coverage for the main residence, and includes coverage for accounts receivable, records, and lost income and extra expenses when the business must be suspended because of a covered loss. Coverage for business property located outside of the home is also increased from $500 to $5,000.
Other insurers offer specialty policies that cover both the home and office. Keep in mind that not all packaged products are worth consideration. Some of these arrangements have added expenses and offer less coverage then it would be with separate business insurance policies.
In terms of the different kinds of business insurance policies that exist, check out my earlier post for a rundown of common business insurance options for small business owners. Again, as I mentioned above, you are going to have to consult with an insurance professional and shop around to get the best deal. But, just making the effort to properly secure your business will put you many steps ahead of the game and help you reduce any loss of your valuable time, money, and other business assets.
This post was brought to you by NRMA Home Insurance offering a range of products including comprehensive motor insurance, home and contents insurance, life insurance, and business insurance throughout Australia.