Insurance Cover Options for Home- Based Small Businesses

According to the National Bureau of Labor Statistics, one third of all homeowners operate a home based small business but the Independent Insurance Agents of America (IIAA) estimates that nearly 40% of these home businesses are uninsured; primarily because their owners thought that their homeowner’s insurance covered their business activities.

What these home business owners don’t realize is that they need a special home business insurance policy and that operating a business from home may void their original homeowners insurance policy.

A typical homeowners policy covers up to $2,500 of the damages occurring on the business premises, and $250.00 off premises. In addition, homeowner’s policies typically don’t cover small business related liabilities. For example if a customer falls and is injured while visiting your premises, you will not be covered. Here are some things that a home based small business insurance policy will cover:

• Equipment: This includes all equipment that is used by the business to provide a service or produce a product. These may include: computers, scanners, copiers and telephones and any specialized equipment.
• Inventory: All finished products that are sold by the business and any raw material that is used in the manufacturing process.
• Automobiles: Vehicles that are used for business purposes must be insured for commercial use, even if they are personally owned.
• Workers' compensation: Workers’ compensations will take care of a business’ obligation to its worker if it runs into trouble and is having difficulty paying its employees. In some states it is a requirement for a business to have a workers’ compensation policy or rider.
• Liability: Business liability coverage protects you against professional liabilities. You will need: errors and omissions coverage, off-premises liability coverage, and product/completed operations coverage. These will protect you against liabilities arising from issues related to work you have done or products you have sold.This is perhaps the one area your homeowner insurance policy should not cut corners on.
  

Basically, there are three home business insurance options that are available, namely: endorsements to a present homeowners policy, a business owner’s package policy (known as a BOP) or a new in-home business policy.

Adding an endorsement or rider to an existing home insurance policy is one way to increase your liability coverage. This is the least expensive option for insuring your business, but it also offers the least coverage. Usually, endorsements are only available to businesses that generate $5,000 or less in annual receipts and only offer coverage up to $10,000.

However, if you are sued, an endorsement will not cover the cost of liabilities arising from a lawsuit, neither will it compensate the business owner for lost income and employee compensation. Despite its limitations, an endorsement to a home insurance policy will usually be adequate for home businesses that have limited equipment and few business customers.

Responding to the growing number of home based businesses, the insurance industry has created "in-home business" insurance policies. Home based business insurance policies can offer general liability coverage of up to $1 million for a few hundred dollars per year.

These policies also provide limited coverage for loss of valuable documents, equipment and accounts receivable records. In the case that your business is shut down, as a result of damage to your house, your home business insurance policy will also cover lost income and ongoing expenses, such as payroll, for up to one year.

A business owner’s insurance policy, or BOP as it is known in the insurance industry, is specially designed to meet the needs of small and medium sized businesses. This package deal is designed to offer a simple, off-the-shelf product to owners. With a BOP, your small business can get property insurance, liability insurance and crime coverage built into one convenient package. These policies works to protect small businesses from: income loss, equipment breakdown, professional liability claims, fire, legal liability claims and products and completed operations claims.

Business owner’s policies are approved for issuance in 39 states including the District of Columbia and can cover businesses as large as 25,000 square feet, with gross sales of up to $3 million. A BOP provides the most comprehensive coverage for your home business by including some special features that are not offered in general business policies. For example, if you run an auto repair business from your home and a customer’s car is damaged in a fire there, your business owner’s policies will cover those losses.

Unfortunately, some small businesses (i.e. environmental businesses, some small restaurants and wholesalers) don’t qualify for a BOP policy. However, the list of businesses that qualify for BOPs was recently expanded, so check with your insurance agent for more information and perhaps a free insurance quote.

Before you go shopping for an insurance policy for your home based small business, prepare and prioritize a list of areas your want covered under your new policy, so you don’t end up getting coverage you don’t need. If you are not sure of how to proceed, speak to a respected insurance agent and compare policies and quotations from several insurance companies. Finally, it is not a bad idea to take advantage of group rates by purchasing your homeowners insurance policy through a professional business association.