Starting and running a home-based business offers many benefits: decreased commute time, increased flexibility, and lower overhead costs, to name a few. However, when building or transitioning to remote business, several areas require extra attention. Digital advertising, data systems and connectivity tools need to be updated, and so does your business insurance.
Unless you work in a profession that requires insurance to practice, purchasing business insurance may not be top of mind when you’re starting a home-based business. Perhaps you assume that if you already have home insurance, and you’re operating your business from home, wouldn’t your home insurance cover your business? Not quite.
This article outlines four key considerations to keep in mind when it comes to comprehensively insuring your home-based business.
Identify coverage limits in your homeowner’s policy
Most homeowners and rent insurance policies don’t include coverage for home-based businesses. Some insurance companies will go so far as to deny a claim or cancel a policy if they find out you are running a business from your home.
Homeowner insurance policies cover personal activities and property, meaning there is minimal coverage (if any) for loss or damages due to professional activities, such as customer complaints, damaged inventory or broken equipment. When first starting a home-based business, inform your broker. They will help you understand what is covered in your policy, as well as help you determine additional coverage.
Align your business with the right insurance coverage
The coverage you need for your business will vary based on several factors, such as industry, service and revenue.
However, a comprehensive insurance package for a home-based business will typically include the following types of coverage:
- Commercial General Liability Insurance covers costs associated with third-party injuries resulting from your professional activities. Your home insurance policy won’t cover a client who injures themselves while visiting your home, nor will it cover medical fees or legal expenses. Product Liability Insurance, however, provides coverage for third-party property damage or bodily injuries that result from a product you sell, manufacture or develop.
- Professional Liability Insurance, also known as Errors and Omissions Insurance or Malpractice Insurance, provides coverage for claims alleging negligence, misconduct or failure to deliver a service as promised. If you offer services or advice, consider protecting yourself with Professional Liability Insurance. For many professions, carrying liability insurance is mandatory to practice.
- Cyber Liability Insurance is essential for any business owner conducting business or storing important client information online. Cyber Insurance provides coverage for notification costs, legal expenses and data restoration following a cybercrime. Even home-based businesses are at risk. In 2019, 43% of cyberattacks targeted small businesses. With recovery costs averaging around $200,000, most small companies cannot recover from cybercrime.
- Commercial Property Insurance protects your physical location from loss or damage; it also protects your company’s other physical assets, like technology and equipment. You might be wondering why this is on the list if you work from home. As home policies don’t cover professional activities, property damages incurred during business operations are not covered. Business Interruption Insurance provides coverage for net income lost and overhead costs required to keep your business operating following a covered property loss. Business Interruption Insurance is typically included in your commercial property insurance policy as a rider.
Ensure your business contents are covered
In addition to the policies listed above, when determining what type of insurance to purchase for your home-based business, be sure to ask your broker about coverage for your company’s most valuable assets. Business contents coverage provides reimbursement for costs associated with repairing or replacing your company’s stock or inventory.
While you’re at it, ask your broker about equipment breakdown coverage, too. Equipment breakdown insurance covers costs to replace or repair equipment and tools damaged due to an electrical or mechanical malfunction. This coverage can range from laptops and phones to large, industrial equipment you use to conduct business at home.
Consider extending your coverage to your vehicle
You might be wondering, “If home insurance doesn’t cover business operations, will my auto insurance cover the vehicle I use for work?”
Like home insurance, auto insurance provides limited coverage for individuals using their cars for business. Some policies don’t provide coverage at all. Your broker will be able to tell you whether you can extend your coverage or if you need to purchase commercial automobile insurance to cover car usage for work.
As more and more businesses are being started from home amid the pandemic, keep these insurance guidelines in mind to make sure you cover all of your bases.