If you run a small business from your back bedroom, chances are your homeowners insurance policy won’t cover a claim if the deliveryman slips and falls on your icy front stoop.
If your inventory catches fire in the garage, forget about it. Unless you have home business insurance that specifically covers your home-based business, you’re on your own.
Maybe worst of all, if you give advice in your business and you make a mistake that costs a client money, the lawsuit that could result will mean money out of your pocket to settle it or defend against it — unless you carry errors and omissions insurance that specifically covers your situation.
“If an individual is running a business out of their home, they can’t rely on a homeowners policy to provide coverage,” says Jeff Olmstead, assistant vice president for small commercial underwriting at The Hartford insurance company.
According to a survey conducted for the Independent Insurance Agents & Brokers of America, a trade association, 40 percent of people who work from home thought — incorrectly — that their homeowners or the insurance provided by their employers would provide coverage if they needed it.
“The typical homeowners insurance policy provides zero coverage for business-related claims,” says Bill Wilson, associate vice president for education and research for the IIABA.
Wilson, who works from his own home office near Nashville, Tenn., says you can get one of these four types of home business insurance:
Endorsement on your homeowners insurance. Some insurers offer an inexpensive business endorsement. It can cost as little as $25 to $50 per year and cover, perhaps, $2,500 worth of computer equipment and a somewhat larger amount of the slip-and-fall variety of liability insurance. These policies rarely offer any professional liability. They can be appropriate for someone who works at home for another employer.
In-home business policy. These policies are a step up and will often reimburse you for the cost of recovering some lost computer data. For instance, if you should have a computer meltdown and lose your accounts receivable, this policy will usually pay a service to reconstruct your records. It is also likely to provide some business liability, but rarely specific errors and omissions coverage. Cost is between $250 and $500 per year, depending on the terms.
Business owners policy. A business owners policy, known in the industry as a BOP, covers loss of data, general business liability/errors and omissions tailored to your business, and off-premises product liability in case your delivery is lost in transit. It will compensate you for loss of income for up to a year if fire or robbery prevents business as usual. If you have customers coming to your place of business, they’ll be protected from accidents while on the premises. And if you and your employees use company vehicles, the drivers will be covered. A BOP doesn’t include workers’ compensation insurance, which covers employee accidents on the job. Many states require it. The price of a BOP policy varies based on the nature of the business and its location.
Commercial package policies are a step up. If you are running something like an automotive repair shop out of your garage, you’ll definitely need one of these heavy-duty insurance policies, Wilson says. Commercial policies include workers’ comp.
For most home-based businesses, a BOP is a good choice, says James Walsh, editorial director at Silver Lake Publishing and an editor of “The Personal Security Handbook: Practical Tools for Keeping Yourself and Your Possessions Safe at Work, Home or on the Road.”
Walsh offers these tips for buyers of home business insurance:
- Find an insurance agent or broker who understands your business. A good place to start is through a professional organization.
- Ask the agent for an umbrella policy that provides protection for your personal and your business assets. Some insurers won’t consider combining personal and business assets, but Walsh believes that the owner of a home-based business can’t separate the two.
- Even if you are only going to use your car occasionally for business, increase the policy limits to $100,000/$300,000 and make sure it’s under your umbrella. “If you are making a living from this business, you don’t want a fender-bender to turn into a cancer that eats up your time and your money,” Walsh says.
He also advises people who run small businesses not to scrimp on errors and omissions or other business liability insurance and make sure that it includes legal defense fees. “You have to think like a corporation,” he says. “You don’t want to spend a lot of time fighting with an angry former customer. You want to make the suit go away so you can get on with your next project.”
As with any other kind of insurance, one good way to keep prices low is to make certain your working environment is safe and secure. Install a computer back-up system, smoke detectors and a security system. And keep sidewalks shoveled in the winter.