Do You Have Enough Insurance for Your Home Business?
If you have a home-based business, you probably believe that your homeowner's policy will protect your business in case of fire, theft or other catastrophe. But the reality is that it may not -- or the coverage may not be enough.
Most homeowner policies limit coverage due to damage or loss of business property to $2,500 in the home and $250 away from home.
Would this be enough if fire gutted your house and destroyed everything in your home office? Would it be enough if a client slipped on ice on your property and sued for damages? Your homeowner's policy could even have a rider excluding any business related liability claims, which exposes your business to even more risk.
How can you ensure that your home business is covered? First, talk to your homeowner's insurance agent and ask.
You want, at the very least, to be covered for loss or damage to:
- Business property (computers, telephone and other equipment)
- Records and files
- Income because of business interruption
- Any expenses incurred while operating out of a temporary location while your house is being rebuilt or repaired.
Remember, most property and liability policies for your business may not cover workers' compensation, health, disability or auto insurance -- each may require separate insurance policies.
If you aren't covered for these risks -- or there isn't enough coverage -- you should look at separate policies that will cover your home-based property and liability risks:
1) Homeowner policy endorsements
This kind of endorsement (or add-on to your current homeowner's policy) is available to home businesses with few visitors. This liability endorsement will protect you in case someone (such as a delivery person or a client) gets hurt on your property due to a fall or other accident. This kind of endorsement is inexpensive (less than $20 a year), which not only covers liability, but also doubles your standard policy's limits for business equipment from $2,500 to $5,000; you can pay more and cover additional equipment. You will need to call your insurance agent to see if your business qualifies for this kind of addition to your current policy.
2) In-home business policy
This option is a step up from the policy endorsements and will give you a broader range of liability coverage, including product liability (if someone is injured using a product that you sell). This option is also affordable: $150-$200 a year in premiums will cover $10,000 worth of your business property and will cover general liability for up to $1 million. This kind of coverage is also ideal for insuring any lost income and outgoing expenses (such as payroll) for up to a year if your business is shut down because of fire, theft or other loss.
3) Business Owners Policy (or BOP)
This policy is designed for small- to middle-sized businesses operating in a commercial location; however, it is also ideal for larger home-based operations. It will cover business property, equipment, general liability, and income lost due to a catastrophe. This insurance is ideal if you operate a portion of business outside your home (such as storing inventory off-site). This policy is similar to an in-home business policy except that the Business Owners Policy has higher limits and coverage. Premiums are more expensive and start at around $1,000 per year.
No matter what insurance policy you choose, you should keep meticulous business records of all your documents, receipts of equipment purchased, and take digital photos of your office and its contents, and store everything in a separate location (such as a safety deposit box). Back up all your computer files and also store them away from your home.
Related: Insurance tips for small business