Are you running a home based business? Whether you call yourself a consultant, independent contractor, freelancer, or entrepreneur, “home-based” is big business in the U.S. More than half of all small businesses in America operate out of someone’s home. There are lot of benefits to running a business out of your home, but there are also some pretty big risks involved, too And if you are relying on your homeowner’s property insurance to cover your business, you may be setting yourself up for a disaster.
Because whether you are a real estate agent, piano teacher, or graphic designer... your homeowner’s policy isn’t going to cover all of the potential threats to your home-based business.
Why you need Home Based Business Insurance
One of the reasons you are operating out of your home is to keep costs low. After all, why would you pay for business expenses you don’t need, such as rent on an office space, or a warehouse you haven’t grown into yet? But avoiding the expense of business insurance is risky business.
If you think you don’t need insurance because your homeowner’s policy has you covered, you are making a mistake that could cost you big.
Here’s why you can’t afford to rely on your homeowner’s policy to protect a business that you operate from home.
#1: You have Assets to Protect
Are you the sole proprietor of your business? Your business assets aren’t the only thing on the line. When you are a sole proprietor of a business, your personal assets could be at risk, because a sole proprietor is personally responsible for all business debts and obligations. And one of the biggest risk to your assets is the high price of a lawsuit.
If you think your business is too small for a lawsuit to find you, think again. Even if you are operating out of a home office, garage, or even the kitchen table, your business could be sued.
If your business has a website, blog, marketing materials, or social media accounts, the lawsuit that you should be most worried about is advertising injury. You may not realize it, but your efforts to market your business online could be infringing on copyright laws, you could unintentionally be invading someone’s privacy, or your efforts to “rise above” the competition could be seen as libelous.
Unless you’ve added an endorsement to your homeowner’s policy, there’s a good chance it may not cover any advertising injury claim as a result of your business.
If you have a general liability policy for your business at home, however, you have a safety net to protect you from these situations.
General liability coverage is there to pay for the high costs of third-party lawsuits for advertising injuries, bodily injuries, or property damage that results from your business. Whether you are at fault or not, the cost of defending your business in court can add up fast. A stand-alone general liability policy may cover costs ranging from lawyers’ fees, court costs, defense fees, settlements, and judgements.
Bonus! The cost of general liability insurance for a business run from your home is likely to be much lower than if you operated outside of the home. Ask an experienced business insurance professional to show you how low your rates can go.
#2: There are Holes in Your Homeowner’s Policy
Your homeowner’s insurance policy is meant to protect your home as a residence, and not necessarily your home as a place of business. That means your coverage may not necessarily extend to business assets. If a fire or theft takes out thousands of dollars worth of inventory you had stored in your garage, don’t be surprised if your homeowner’s policy leaves you footing the bill.
Expecting a delivery? If your delivery person slips on your icy driveway hauling a package up to your door, your homeowner’s policy may not cover the costs of his injuries if the package contained inventory or supplies being shipped to your “business.”
Unless you have added an endorsement to your specific policy, the typical coverage a homeowner’s policy provides for business-related claims is usually zero.
A homeowner’s endorsement may only be available if your business has very-few business related visitors, such as freelance writers or graphic designers. On the other hand, if you regularly have clients in and out of your home, your homeowner’s policy may not allow a liability endorsement to cover your business activity. In this case, you may want to look into stand-alone policies to be sure your business is protected.
#3: You Provide a Product or Service
Does your business provide a product or service? From widgets to doodads, consultations, advice, or the world’s most beautifully designed logos, businesses typically offer something to paying clients and customers. But what happens if your client is less than satisfied with the product or service you’ve provided?
Let’s imagine that your client sent in an order, and you made a small mistake inputting the shipping date. When you missed your deadline to ship ten boxes of gizmos, this misunderstanding cost your client big time. And now they have lawyered up, with every intention of making you pay for your mistake.
Maybe you don’t have any products to ship. Perhaps you offer a service to clients as a real estate professional. Imagine the following scenario...
You help your client find the home of their dreams. You work up a contract, and they hand over a sizeable deposit check. But you made a small mistake on the contract, and this small mistake led the client to lose the home and their non-refundable deposit. Your clients want you to reimburse them for their financial loss, and they want you to pay the difference in sales price between this home and the (higher priced) home they finally end up in.
When your business is facing a lawsuit that arises from a client’s financial loss, you can protect yourself with professional liability insurance. Professional liability, which is also known as Errors & Omissions (E&O) coverage, is the only policy specifically tailored to cover lawsuits from third-party economic loss. And if you are a service professional, such as a consultant, real estate agent, for financial advisor, professional liability is a must-have for your business.
Professional liability fills in the holes in your general liability coverage, which may protect you from a third-party injury lawsuit but may not cover you if your client tries to recoup a financial loss. And a homeowner’s policy, even with an added liability endorsement, may cover you in case a client is injured in your home; but that doesn’t mean the protection will cover a third party lawsuit seeking damages for economic losses.
#4: You Use a Computer
Do you use a computer, laptop, tablet, or other technology to help you run your business from home? If there was a break-in at your home, and your work laptop, desktop, or tablet was stolen, there's a chance your homeowner’s policy may not cover the full cost of replacing your business equipment. But that’s not the biggest risk your business laptop faces.
Physical equipment theft is only the beginning. What kind of customer information do you have? Sensitive customer information, such as Social Security or credit card numbers, is always at risk from potential hackers. There is a very good chance that your homeowner’s policy is not going to cover the costs of a data breach, such as notifying customers, monitoring credit, or the costs to defend your business in a stolen identity lawsuit.
Cyber liability insurance offers protection for your business from exactly these scenarios. Whether your laptop or computer is hacked or stolen, the information inside it is often times a more valuable asset than the physical item itself. Cyber liability may offer coverage for this sensitive material that your homeowner's insurance wouldn’t.
#5: You need a Helping Hand
When the busy months roll around, do you have a helper who pitches in to get things done? Whether it’s packaging up extra baked goods to take to the farmers’ market, updating listings and setting your appointments, or getting you caught up with your filing; a helper may be putting him/ herself in harm’s way. All it takes is one slip on your wet kitchen floor, or a trip and fall over a box of files to land your helper into a costly medical situation.
Could you afford to pay for a trip to the emergency room, a surgery to repair a broken bone, physical rehabilitation, and missed wages for your employee after they accidentally fall down the stairs at your home office? Who would you turn to for help with the mounting pile of medical bills that need to be paid?
Your homeowner’s policy may not cover an injury at your home if the injured person is an employee who is working for your business. If your employee is hurt or becomes ill while doing their job, the only insurance protection that can help cover their medical expenses is workers’ comp. And, depending on the state that you do business in, you may be required by law to provide workers’ comp for your employees. Even if you only have one, part-time person helping you out.
When your business begins to experience growth to the point that you need to hire help, it can be a good thing. But it’s important to know what your responsibilities are to your employees, and that includes providing workers’ comp insurance to protect them from accidents, injuries, or illness from the business you run from home.
Home based business insurance doesn’t have to be expensive. You can begin with a general liability policy, and then customize your coverage to best meet the needs of your specific business. You may be surprised to find the small business coverage you never even knew you needed. There are easy ways to keep your business insurance costs low, allowing you to benefit from even more coverage with affordable premiums. But thinking that your home based business is protected with your homeowner’s policy is a mistake that you simply can’t afford to make.