NFIB

Are You Covered?
03/ 12/ 2004


When tragedy strikes, like the killer tornados in Florida earlier this week, we are reminded that resulting losses to home-based businesses are not necessarily covered under your homeowners' insurance policy. Beware, you may not be covered sufficiently if disaster or accident strikes, says Workshop contributor Carol Muse Evans. Read on for more details about when you need more insurance, and what kind you might need.

Your home business needs liability insurance in case an employee or client is injured in the home or using your product or services. Home businesses also need property insurance in case of fire, destructive weather or theft. So how do you know what you and your business need?

According to the Insurance Information Institute (III), a non-profit trade association sponsored by insurance companies nationwide, business owners should not assume that their homeowners' policy covers their home business, as well. "It may, but probably only to a maximum of $2,500 for business equipment in the home and $250 away from the premises," according to Jayna Neagle, spokesperson for III.

Such a policy probably will not cover an injury should a client or salesperson be injured on your property. It also does not insure your ability to continue to do business should your office be destroyed, records damaged or equipment ruined by disaster. Moreover, it won't replace lost income if you cannot keep doing business after your home and home office are damaged.

The III suggests three options when choosing home business insurance:

Endorsements to an existing policy. Depending on the type of business you have, you may be able to add on to an existing homeowners policy, such as with a home day care. Some insurance companies offer property and liability insurance for "incidental" home businesses, but each insurer may have their own definitions by which they determine such coverage.

A combination of several business policies. You can purchase several individual policies to provide the various coverages you need, such as business property, income, and general liability, tailored to meet the unique needs of your own home business.

A Small Business Owner's Policy (BOP). This is an all-encompassing, single policy covering business property, liability and business interruption insurance. While many such policies are designed for off-premises businesses, Neagle points out, this policy may work for you if you earn a significant amount of income from your home business. Discuss your needs with an insurance agent you trust to determine if this type is right for your business.

Do you have first-hand lessons from surviving a natural disaster?

Additionally, some types of home business may benefit from umbrella policies which pay for a loss when the limits of your underlying policy are reached. Such umbrellas usually only cover a loss that is already covered by the underlying policy, so it is important to be sure exactly what will be covered.

Some insurance companies are now offering a mini-business owners package policy specifically for home businesses, Neagle points out. While the coverage by each company and their policies vary, many cover the loss or destruction of property, valuable papers, personal injury and advertising liability. Many of these companies do require that the purchaser also buy homeowners and automobile insurance with them, as well. Though these package policies cut the possibility of gaps and duplications in coverage, some states have not yet approved their sale.

No matter what type of coverage you choose, an important tip to remember is that insurance companies frequently offer discounts to those policy holders with security systems or fire detectors. Always ask about opportunities to receive discounts. Look for ways to save money and minimize investment.

As your company grows, be sure to stay in touch with your insurance agent to be certain new office equipment, additional income, etc., is covered by your existing policy. They won't cover what they don't know you have.

Again, talking with a trusted insurance agent, as well as doing a little research and shopping, can help you get the best coverage tailored to fit your home and home business. For more information on insurance matters, visit the Insurance Information Institute web site.

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