Do Home-Based Businesses Need Insurance?

Over half of the small businesses in the U.S. are home-based enterprises. Today’s numbers have it at around 52%, but research suggests that percentage will increase in coming years. You may be wondering, “do all of these home-based businesses need insurance?” There are as many types of home-based businesses as there are businesses. Some professionals freelance on the side, offering consulting services from home while working full-time. Others start companies in their bedrooms, hoping to grow their ventures.

Home-based businesses are more diverse than ever before, thanks to technology that allows for remote work. Today, writing, editing, graphic design, administrative assistance, coaching, teaching, selling, customer service and many other business options are all possible from the home office. Surprisingly, construction is the most common home-based enterprise.

When entrepreneurs open a retail outlet or a business office, they usually realize they need business insurance. In fact, many business leases require it. When it comes to a home office or online business, though, not every new business person realizes they need separate insurance for a home-based business.

Some entrepreneurs assume their homeowners’ insurance or tenants’ insurance covers their business and some just don’t think about the fact that their home-based business needs insurance. Expecting homeowner’s coverage to protect your business can be a costly mistake.

Why Having Home-Based Business Insurance is Important

The problem with using homeowners’ insurance or tenants’ insurance to cover business loss is considerable. Some homeowners’ policies will cover the loss of some specific business equipment, but many policies have exceptions for home-based businesses and won’t cover a home businesses’ losses.

Worse, most personal insurance does not cover all that can go wrong with a home-based company or for someone who works at home. Coverage for liability, data loss, data theft, lost income and other possible disasters is not covered, and these losses can be enough to financially ruin a home-based venture.

Some homeowners’ coverage is explicitly for homes only, and operating a business inside the home can violate the terms of the policy. If this is the case for you, you will not only need new business insurance to protect your company or work-at-home arrangement, but you’ll also need to update your homeowners’ coverage, too, to make sure it is not declared invalid if you ever need to make a non-business-related claim.

Some small home businesses require clients, vendors and even delivery personnel to drop by. If this is the case for you, keep in mind most homeowners’ insurance will not cover third-party claims on your home policy. This may mean you need to pay for lawsuits due to injuries on your property out-of-pocket if you don’t have separate insurance for your business.

Why You Need Business Insurance for a Home-Based Business

You may need business insurance for your home-based company if:

• You work from home part or all the time. The popularity of flexible work arrangements has grown rapidly over the past ten years, and the average U.S. employee now works remotely two days out of each month. Telecommuting arrangements at your traditional job give you more flexibility, but they may affect your insurance needs. If you are injured at home while working, workers’ compensation and other employee-based insurance may not cover you. If your home office or home computer is compromised while you are working at home, your insurance at home may not cover the data breach or related expenses. You may need business insurance, even if you only work from home part-time.

• You have expensive equipment or inventory at home. Could you replace your business equipment or inventory out of hand in the event of theft, fire or other disaster? If not, business insurance could ensure your business doesn’t suffer in case the worst happens.

• You have clients or vendors stopping by your home. If anyone is dropping by your home for business purposes, you need home-based business liability insurance. If a delivery person trips and injures themselves while delivering business documents or if a client injures themselves while visiting your home office, liability coverage will help pay for the legal claim, medical bills and other costs.

• You keep business data at home. If your data is breached and you run a home-based company or if you lose important business information you store at home, you could lose income or be faced with lawsuits. Insurance for your business protects you from these risks, which are not covered by a homeowners’ policy.

• You’re trying to grow a home-based business. Home businesses are usually small businesses, and, if you want your enterprise to thrive, you will need business insurance. Any legal action against your small company and any loss of equipment or data can force you to close your doors. Business insurance protects you from these risks, so you can confidently focus on growth.

• You have a home business with liability risks. Some businesses naturally have a higher liability risk than others. If you routinely send confidential information or if your home business involves a woodworking shop where there is a risk for injury, you want business insurance.

If you operate a business from home and routinely drive to see clients or drive to take care of business tasks, business insurance and a separate business auto policy are also important. If your profession puts you at risk of malpractice claims, it is imperative to have business insurance, whether you work from home or an office.

• You have hired employees or plan to recruit. If you have others working for you, you need to provide coverage for them if they are injured or suffer loss while working for you. Even if you hire remote or contract workers, you may face a legal claim if one of them is injured and pursues you for damages.

Liability insurance for your home-based business can protect you if this happens. If you have part-time or full-time employees, you may need to pay for workers’ compensation coverage for your workers to comply with state laws.

• You conduct business inside and outside the home. If you drive from one location to another as part of your business, you need business car insurance as well as a comprehensive business policy. In addition, if you conduct work at various locations, you need a business policy to protect you wherever you work. Even if you are making business calls in a coffee shop or doing work in the field, you want to be covered.

• You manufacture items. The manufacturing process exposes you to additional hazards. The process itself can result to injuries to yourself and your employees. In addition, you may be exposed to products liability claims if your products have any inadvertent design or manufacturing features that clients claim have caused an injury. Liability coverage is essential to protect yourself from this eventuality.

• You keep inventory at home. Inventory may be bought on credit, and, even if it’s not it represents significant revenues. The loss or damage to any inventory can represent significant losses for your enterprise and insurance can help protect you. Losses (thefts or criminal losses) from employees can be protected with Fidelity Insurance coverage.

• Your home office is located in a higher-risk area. Are you on a fault line or in a flood zone? If your area is at risk for any natural disaster, consider additional business coverage. A storm, tornado or other catastrophe can result in downtime, business losses, loss of equipment and data and other losses. Homeowners’ and renters’ insurance will not cover this, which is why a strong business policy is important.

• You rent your home. As a renter, you may have common areas you share with other tenants and your landlord’s decisions can have a significant impact on your business. For example, if your landlord decides to complete renovations in common areas, your ability to conduct business may be affected if power or water is out. Insurance can protect against these and other losses that renters may need to consider.

Some entrepreneurs think they don’t need business insurance because they operate a small business, but that’s dangerous thinking. Even a very small business not yet making a profit can generate significant expenses in the event of a lawsuit.

If a delivery person slips and harms themselves when delivering a business package, you could be liable for tens of thousands of dollars or more. The amount of revenue or sales you make is not as important as the possible value of a lawsuit against your business, and this value can be very high.

What are Your Options for Business Insurance?

If you work from home or run a business from your personal property, you essentially have three options for business insurance:

1. A Rider to Your Tenants’ or Homeowners’ Policy

This option offers limited liability coverage and business equipment coverage. It’s essentially an addition to an existing policy and is typically very affordable. Since it only provides limited liability and equipment coverage, you need to ensure the policy will cover the cost of a home fire, lawsuit or other risk. This insurance option is best if you have a low liability risk, are a solopreneur and don’t have considerable equipment in your home.

2. Business Owner’s Policy (BOP)

This is a stand-alone policy, separate from your homeowners’ insurance. It provides the most comprehensive coverage for your enterprise and protects you against liability, business equipment damage, data loss and business interruption. This is the type of coverage traditional businesses have.

3. An In-Home Business Policy

While not as comprehensive as a BOP, it offers more coverage than a rider. This is an affordable option if you want more peace of mind and have up to three employees.

How to Choose the Right Insurance for Your Home Business

Choosing the right insurance doesn’t have to be daunting. Start by looking at your state’s laws, which may dictate whether you need specific types of coverage. Beyond that, look at your particular industry and consider whether you need insurance to reflect industry-specific risks. If you are at risk of malpractice, for example, you will generally want malpractice coverage.

Consider the types of coverage your business may need. These may include:

• Business car accident coverage. If you travel by car between locations as you do business or if you travel by car for any business purpose, it is important to have business insurance. The risks of being in a car accident are high. In fact, the average driver files a car accident claim every 17.9 years, for a total of three to four accidents over a lifetime.

Business auto insurance can help pay for car repair costs, medical bills, lost or damaged business property and other expenses related to a car collision.

• Liability coverage. General liability coverage for your business protects you if a third party, contractor, vendor or anyone else files a lawsuit against your business, alleging negligence or injury.

• Business property coverage. If your business suffers loss to signs, inventory, retail merchandise, computer equipment and other business property, this insurance protects you from the financial cost.

• Data coverage. Small businesses represent an attractive target for scammers and artists because smaller companies cannot invest as heavily in a dedicated IT team, security department and top-of-the-line security measures when compared to larger corporations.

As big conglomerates block scammers, criminals may target smaller businesses since small enterprises can be accessed and may still contain enough personal or financial information to be profitable to scammers. Data compromise insurance can protect you if personal information is stolen, leading to client lawsuits. Some coverage can also protect you if important data is destroyed in an attack.

• Employment liability coverage. If you hire a worker, you face employment risks. Even one employee may allege discrimination, wrongful termination or make other claims. Employment practices liability coverage can help address this risk.

• Medical coverage. Small business, including those run from homes, may want or need medical insurance for owners and workers to ensure bills are paid in the event of any job injury or medical condition. Group medical plans can attract the best talent and protect you from any health concerns.

• Commercial liability coverage. While general liability insurance protects you if someone is injured on your business property, commercial liability coverage is more specific. It addresses the risk of lawsuits stemming from claims of property damage and bodily injury due to operations, premises, products and advertising.

Many businesses seek the most robust coverage — both general and commercial — to offer the broadest-spectrum protection possible. Liability lawsuits are one of the most common legal complaints against companies and having a small or home-based business does not reduce your risk.

While a larger company may be able to pay for a lawsuit from profits or assets, legal action can force a smaller business to close its doors. Liability protection ensures you don’t have to stop pursuing your dreams of business ownership due to a claim.

• Business interruption coverage. If your home-based venture is interrupted by risks specifically stated in your policy, this coverage offers business income to replace what was lost so you can keep your doors open when the unexpected occurs. Common interruptions covered include tornados and fires.

• Workers’ compensation coverage. States require employers to cover part-time and full-time workers with this type of insurance. If a worker is injured on the job, workers’ compensation provides them with medical coverage and a portion of their wage. If you’re an employer, you’re expected to pay for workers’ compensation for all your employees, with few exceptions. Failure to do so can result in penalties and fines.

• Fidelity coverage. If any of your workers prove to be dishonest, this type of insurance can recover the stolen amount. This type of protection is important for any home-based business where employees may handle finances.

• Specialty insurance. You may need industry-specific insurance or coverage to address particular risks common for your home-based business.

Determining how much coverage and what kind of coverage you need depends on your business, your needs and your budget. Talking to an insurance professional can help you decide exactly what policies might be best for you. In addition, taking a look at the types of policies competitors and others in your industry have can be useful in confirming typical types of coverage.

In general, you want to have the most robust and comprehensive coverage possible. Ensure you can recover all revenue losses in case of a business disruption and have the most amount of liability coverage possible. In addition, evaluate your needs by asking:

• What sorts of profit margins does your business have? If you are running on very narrow margins, keep in mind that even minor disruptions or losses can mean you don’t have enough to cover the cost of losses.

• How leveraged is your business? If you have business debt, you will need to keep paying interest and your monthly payments on any loans. This can become a problem if an unexpected event consumes your resources. The more debt you have, the safer you will be with more comprehensive coverage.

• Is your insurance tax-deductible? For most home-based businesses, at least some of your insurance payments may be. This can allow you to enjoy more coverage while leveraging some tax advantages. If you want a business policy but are concerned about budget, consider how a tax deduction could make insurance more affordable.

• How liquid is your business? Even if you don’t have much debt, if you are re-investing heaving in your home-based company, you may not have much cash or many liquid assets you can use to meet financial obligations in the event of a legal claim or other issue. If you don’t have ready access to cash or a line of credit to keep doors open, more coverage can ensure a challenge won’t leave you struggling.

• Who are the shareholders in your business? If you have investors or hope to attract some to your small venture, you may need more robust coverage. This will show investors you can keep your business running, even if you run into adversity.

• What are the risks in your business? If you run a marketing business relying on edgy or parodic content, you may face legal action from a disgruntled user or consumer. If you sell food, you may need extra protection against any claim stemming from food-borne illness.

Professionals may require malpractice coverage. Writers may have a risk for repetitive-stress injury. Always do a clear risk analysis to determine the most likely challenges to your business and be proactive in using insurance to reduce the hazards.

Is It Time for Personalized Business Insurance?

As many as 60% of home-based businesses don’t have enough insurance, reports the Independent Insurance Agents & Brokers of America. Are you among them?

It doesn’t have to be that way. Affordable and flexible options are available. If you work from home even part of the time or have a home-based business or are a solopreneur, contact Strock Insurance to get a quote. Strock Insurance has been helping individuals and small businesses in Camp Hill, Harrisburg, Lebanon and nearby Pennsylvania communities get the right coverage since 1983.

We continue to be an independent and locally-owned company so we can serve our local customers with the personalized attention they have always come to expect from us.

Strock Insurance knows every business is different, which is why our exceptional team offers personalized solutions to make your company a success. With our attentive service and comprehensive insurance solution, we can bring you peace of mind as you focus on business success. Contact Strock Insurance today for a business quote and to find out how to get the insurance your home-based business needs.