Working from a home office or doing business from your home can be a great way to earn extra income and has a number of intangible benefits: less stress, no commute, time with the kids, etcetera. But it is important to remember that the home business is just that - a business. It needs to be insured like any other business.
Renters' and homeowners' policies do not cover home businesses. Personal auto policies do not cover autos used for business purposes. Many policies have exclusions for "illegal" operations, so it is important to determine if your business is allowed to be a home based business in your community.
If you run a business from your home, it is important to work with an insurance professional and explain all current operations and any potential operations from the home so you can secure appropriate coverage.
What Coverage is Needed?
As with any business, the owner must analyze what types of business will be operated and the components of that business. You can consult the checklist on this guidesite to help gather the appropriate documents. Consider and answer the following questions:
- Will the business supply, manufacture or create a product or foodstuff?
- Will a vehicle be used in the business for any purpose?
- What electronic equipment will be used AND will that electronic equipment be used for personal, non-business applications?
- Will a professional service be provided?
- Will business visitors come to the house?
Focusing on these questions will help identify what types of coverage are needed for the home business.
Business Property Insurance
In most instances, your home business will need business property insurance. Business property insurance insures against loss or damage to property used in the business. If, for example, a fire occurs and your home office is destroyed, your computer, fax machine, copier, furniture and printer would not be covered under your homeowners' policy. You need a business property policy to provide that coverage.
Businesses often need to make a decision regarding whether they will buy actual cash value coverage or replacement cost coverage. For the home business, in most cases the business owner should secure replacement cost coverage and verify with their insurance professional that electronics are absolutely covered under the policy. Actual cash value policies may have lower premiums, but most home businesses cannot afford the lower settlement value after a catastrophic loss.
Liability insurance protects the business when it is liable for damages caused to another or another's property. This type of business insurance is necessary if business visitors will visit the house. Your homeowners' policy will not protect you from claims made by injured business visitors. Business visitors include delivery people and couriers. If a courier slips and falls on your front steps making a business delivery and you face liability for their injury, the homeowners' policy provides no coverage.
Professional Liability or Acts Coverage
Professionals working from their home still need the same professional liability insurance as professionals working out of an office. As straightforward as this sounds, many professionals do not secure professional liability insurance when they work out of their home. It is important that you try and avoid any gaps in coverage. For example, if you are transitioning from a paid position to a new home business and your prior employer provided professional liability insurance, do your best to secure coverage that will be in place the moment the prior coverage lapses. Even if this means insuring a period where you perform no services (perhaps after a pregnancy) your premiums, in the long run, will be less expensive without a coverage gap.
Product Liability Coverage
Product liability coverage protects the business if the business is liable for damages to a person or property caused by a product supplied, designed or manufactured by the company. If you make or supply something, consult with your insurance professional on the need for this coverage.
Your personal auto policy does not cover a business use of your vehicle. If you will make deliveries, visit clients, pick up packages or use your auto for a business purpose and you get in an accident, your personal auto policy will not cover you. Business auto is relatively inexpensive and an absolute necessity if you use the car for any business reason.
Other Coverages and Considerations
Because of the rise in the number of home businesses, a number of insurers are starting to offer some of these coverages as endorsements and riders on standard homeowners' policies. Other insurers offer specialty policies that cover both home and office. The home business person must compare these coverages to the actual cost of obtaining separate business coverage. The home business owner must compare and contract the coverages available under such products in comparison to purchasing a separate business policy. Sometimes the products offer less coverage and are packaged together solely for convenience.
Finally, the home business must comply with all regulations, health codes, laws, regulations and statutes. A failure to do so may void coverage. Employment laws must be followed. If you will have employees, you will need workers' compensation coverage.