For many small business owners, working from home is a dream come true. However, this is a dream that comes with its own set of sometimes-unexpected problems and considerations. As an entrepreneur, some challenges – like needing to efficiently manage your own time and wear multiple hats – are probably already on your radar. What you might not realize though, is that your insurance needs change when you open and operate a business out of your home, potentially posing an unanticipated challenge.
If you operate a business out of your home, you should be aware that your homeowners policy may not offer you the protection that you need. In some cases, operating a business from your home can even violate the terms of homeowners insurance policy completely. Before you open your door to clients, you need to understand your legal obligations and plan accordingly to ensure that you, your business, and your clients are all properly protected with the right insurance policy in place.
What Does Home Insurance Cover?
Homeowners insurance is designed to protect your home against common risks like fire or vandalism. Insurance rates are calculated for your expected level of risk, which is based in part on the standard value of your home’s contents and the types of problems that most commonly affect homeowners. For this reason, home insurance may exclude or simply fail to cover anything that falls outside of the expected scope of a policy.
In general, homeowners insurance covers the structure of a home and its contents up to a specified limit. Depending on your policy, there may also be some liability protection in case someone slips and falls or is otherwise injured in your home. However, the coverage limits put in place by your home insurance may be too low to cover your business needs.
Working from home may affect your house insurance as well. If your insurance company does not know that you will be operating a home office, certain claims may be denied. Before starting a home business, you should always speak with your insurance company to determine how working from home might impact your insurance coverage.
Where Home Insurance Falls Short
Business equipment and inventory can be significantly more costly than typical home furnishings. The high-end electronics, specialized office equipment, and sales inventory that you require to keep your business running may exceed the value of your policy.
Even if your business does not deal heavily in physical goods or require expensive equipment, you will likely have valuable data and intangible property that are directly tied to your livelihood. If you lose income as a result of a catastrophic data loss occurring in your home office, your homeowners policy may not compensate you.
The increased range of potential liability issues your home faces when it transforms into a place of business may also pose a problem. Home liability coverage is primarily meant to cover the types of accidents that typically occur in domestic settings, like someone falling on your porch or being bitten by your dog. Issues of professional liability are not covered by this type of insurance.
For these problems and others that can arise when operating a home-based business, it is important to buy proper business insurance for your home-based office.
Home Business Insurance Solutions for Your Needs
Home-based businesses are unique, and your needs as a business owner will reflect that. Fortunately, a variety of insurance products are available to overcome the specific challenges you may face. Before purchasing coverage, it is a good idea to review your options and build a policy based on the coverage and features you require.
If you’re a freelancer with no physical product and minimal equipment, you may not need extensive coverage. However, you should consider professional liability coverage, which can protect you from legal action taken by dissatisfied clients. Professional liability insurance protects your business if you are sued for negligently performing your services, even if you haven’t made a mistake. Such coverage should be a must-have for anyone who offers consulting or other professional services.
If you routinely have clients come to your home office, or you have any sort of in-house employees or staff, a more robust general liability policy may be a better choice for protecting your assets. These policies protect against bodily injury, property damage, data loss (in some cases) and reputation damage caused by employees.
In some cases, it may make the most sense to purchase a general use business owners policy (BOP) which offers a variety of coverages that are useful to businesses of all types. A BOP includes protection for your business equipment and office furniture. It also offers general liability protection for issues like bodily injury and damage to third-party property. Depending on the policy you choose, you may also be able to add coverage for profit disruption, which can help reimburse you for lost earnings when your business is interrupted by a covered event.
Article By: Insurance 101