Do you have a side job to make a little extra cash? Maybe you’re good with a needle and thread and do alterations? Or maybe you’re the social type that likes to host Tupperware or Thirty-One parties? Or maybe you’ve set up a small online store on eBay? Does your work require you to use your personal vehicle, such as delivering pizzas, distributing newspapers or even using your car as a taxi cab through Lyft or Uber? If you answered yes to any of these questions, you might be a small business in the eyes of your insurance company.
As a small business, you should have appropriate insurance to cover yourself in the case of a loss. Without proper small business insurance, you could be personally liable for losses that happen on your property, while driving your vehicle, or as a result of the performance of your work. Incidents could include such things as Tupperware party guests slipping on your sidewalk, having a car accident while delivering pizza, or damaging a wedding dress on which you were making alterations.
Why Do I Need Business Insurance?
There are about 18 million home-based businesses in the United States. Though home-based businesses can be a great way to make money, some 60 percent of them are at risk, and they don’t even know it. According to Independent Insurance Agents of America (IIABA), many of these businesses are operating without small business insurance, mistakenly believing they are covered by either their homeowners insurance or auto insurance. The fact is, however, most homeowners policies have a “business pursuits” exclusion, which often limits coverage to just $2,500. Others may not provide any coverage at all.
Having limited coverage (or no coverages at all), is scary considering what might be at risk. A graphic artist could easily have $20,000 in computer equipment and software. The “slip and fall” example from earlier could cost many thousands of dollars just in lawyer fees. A home based manufacturer could be liable for an injury caused by their produce where the sky is the limit on what a judge or jury might award the plaintiff.
Assess Business Insurance Needs
When it comes to determining the amount and type of insurance your business needs, there are a few questions that should be asked:
- What would it cost to replace your equipment?
- What is the value of the product inventory you have at home?
- Do customers come to your home for any reason?
- Would the loss of your vehicle bring business to a halt?
- What would happen if a disaster forced you out of your home for a while?
Your answers to these questions could impact the type of insurance you would need.
Different Types of Insurance for Business
There’s more than one type of policy that could cover your business needs. These policies include:
A business owner’s policy (BOP) offers financial protection for both liability and property damage for hazards. Depending on the insurance company providing the coverage, it might include theft, loss of data, loss of income, and general business liability; It also may cover the structure from which your business operates. A BOP may also provide some off-premises coverage, including liability coverage for products you sell, or parts you install. It’s a great choice for plumbers, electricians, restaurants, convenience stores, and other similar businesses.
A home office policy provides less protection than a BOP, but might just be what your business needs. This type of insurance policy combines homeowners and business insurance, eliminating duplicate coverage. It covers general business liability, lost income, and ongoing expenses like payroll. A home office policy is a great choice for businesses with few visitors. Examples would include home-based contractors, graphic design artists, and other similar pursuits.
A “business pursuits” endorsement to an existing homeowner’s policy provides the least protection for a small business. Sliding by with just a business pursuits endorsement is not recommended for home-based businesses that have customers on-site, or costly equipment. However, it might be the right choice for freelance writers and Tupperware party hosts, etc.
It’s important to note that the examples shown above may not offer all of the coverage you need. You may need additional coverage such as professional liability (errors & omissions, or E&O), commercial auto insurance, worker’s compensation, or disability insurance.
Are You Covered?
As you can see, there are a lot of variables that determine what type of coverage you need for your home-based business. Knowing that it is very likely that your standard homeowners policy or auto insurance policy won’t provide the coverage you need, you need to ask yourself: am I covered?