More than 24 million entrepreneurs operate businesses out of their homes. Whether a masseuse, an accountant, a baker or a computer consultant, each should consider the insurance needs of their home-based companies.
Many business owners mistakenly believe that their homeowner’s policies cover the property and operations of their business. However, most homeowner’s policies cover only $1,000 to $2,500 for business equipment and offer no liability protection or loss of income coverage.
There are several options to consider when deciding what type of coverage to purchase for a home-based business. The least expensive option is to purchase an endorsement to your homeowner’s policy. For as low as $14 a year, business-owners can increase their standard homeowner’s policy limits. This option may make sense for people who have no liability exposures, do not store business inventory, do not rely solely on their income for survival and have inexpensive business equipment.
Most insurance agents agree that few people fall into the category of being adequately covered with a homeowner’s policy endorsement, for those that require additional coverage, a home office policy is the next step up. Home office policies offer business coverage including, business liability and replacement of lost income, as well as homeowners coverages such as fire, theft and personal liability. These policies were developed specifically for home-based businesses and provide adequate coverage while avoiding gaps or duplications in coverage.
A home office policy also provides coverage such as lost income and reimbursement for ongoing expenses if the business is unable to operate because of damage to the home. Coverage for loss of valuable papers and records, accounts receivable and off-site business property are also included in most home office policies.
Businesses that stock inventory, manufacture products and those at high risk for professional liability may want to consider purchasing a business owners policy. BOP’s provide the most comprehensive coverage, in addition to the coverage provided by home office policies, BOP’s offer off-premises liability and coverage for products.
When deciding how much insurance coverage is needed, it is important to look at how much you have to lose. For example, a masseuse that has clients coming and going from the home would need more liability coverage than a consultant that doesn’t have many visitors in the home, because of the possibility of a client injuring themselves on the premises. Just as a Mary Kay makeup consultant would need more coverage for inventory than a CPA might need.
Business-owners should discuss the type of insurance that makes sense for them with an insurance agent. Agents can help decide the amount of coverage needed, as well as explain any exclusions and deductibles. It is also recommended that business owners review their insurance needs yearly because as the business grows and changes so do the insurance needs.ADDITIONAL RESOURCESCalCPA