The economic hardship of recent years has meant an increased amount of people attempting to create an income stream by starting up a small business from home. These entrepreneurs try to leverage their expertise in industries as disparate as software engineering, online merchandising, and tutoring to meet the cost of living in an uncertain world. Some of these innovators have even set up businesses devoted to basic tasks such as taking care of pets.
The area of business is typically a home office, but it could be anywhere on the property or in a separate building close to the home.
If you are running a business from your home, you need to consider one very important factor – insurance.
A brief examination of a typical household insurance policy can let you know what sort of cover you have as someone who runs a business from home. The standard home insurance policy limit ranges between $2,500-$5,000 for property that is used primarily for business purposes located inside the home. If your main property used for business purposes is a distinct location to your insured house (e.g your vehicle), you are entitled to a lot less, usually between $500 and $1500.
These policies cover business equipment such as furniture, technology, and supplies, but they do not cover intangible goods such as business data. A separate policy is required for the latter.
What if you run your business from a detached property such as a garage or shed?
Unfortunately, standard home insurance policies do not provide cover for structures not attached to your dwelling. This means that if you conduct business from a detached garage, the insurance company will refuse to pay out on claims of lost, damaged or stolen goods. Furthermore, it is worth bearing in mind that a shed in your garden used for storage of business equipment is also not covered. You will usually need distinct policies in both cases.
Do standard home insurance policies include liability insurance for your business?
Policy wording is usually restrictive in terms of the cover provided for business liabilities. Standard home insurance policies don’t cover “bodily harm or property damage arising out of or in connection with a business conducted from an insured location or engaged in by an insured.” This means that cover for incidents occurring as a result of business activities is non-existent for at-home entrepreneurs.
Most household insurance policies have a specific exclusion for professional liability insurance. This means that seeking out your own cover is of paramount importance. After all, professional liability insurance is by far the most pivotal cover to have for people running their own business whether from home or not. It covers you in the event that you provide negligent business advice or services.
The majority of people can recover financially from having $1,500 worth of business equipment stolen. But it would be a hammer blow to get hit with a $250,000 lawsuit for negligent business practices due to an error in the advice you gave or the service you provided to a client. It is best to seek out some sort of liability cover.
How can people who run a business from home resolve the insurance conundrum?
There are a few options available to home business owners to ensure full protection against hefty financial losses.
Some insurance companies (typically large ones), allow for policy add-ons that provide coverage for home businesses. The conditions of these add-ons are normally restrictive and only given to business owners who do not have clients visiting their home office.
Many companies offer standalone home business policies that can give adequate liability and business cover. For home businesses engaging in riskier kinds of business such as day care for children, a special policy might be required for full protection.
The key point to take away is that if you are running a business from your home, a standard household insurance policy is not enough.
You should always be prudent and ensure you are covered for as many hazards as possible. This usually means having a chat with a reputable insurance broker near you who can give professional advice on the exact cover that you should purchase.