Insurance for Home-based Businesses

Suzanna De Baca -- Expert Business Source, 7/20/2007 3:40:00 AM

If you’re thinking about starting a small business out of your home or if you already own one, making sure that you have the right types and right amounts of insurance to protect your business and personal assets is crucial.   Even if you have homeowner’s insurance, you may need policies to cover both your home and your business.  
According to an article entitled, “Understanding Business Owner's Policies,” on AllBusiness.com, “Basically, three types of insurance are available to protect your business: property, liability and workers' compensation.”  

Worker’s compensation is mandatory in U.S. States except Texas and states have different requirements regarding this type of coverage.The other two types of insurance are not required by law, but are important risk management tools that can protect you and your business.

While there are many other types of insurance to consider as a business owner, here are some issues to think about when shopping for the property and liability coverage aspects of your home-based business:
Can I get one policy for both home and home business?

Some insurance companies offer coverage that insure both your home and your home-based business under one policy.  In general, these policies protect you from business liability lawsuits and loss of income, and typically cover business property and computer equipment.  While these policies may sometimes be less costly than adding riders to your home insurance or buying separate policies for home and business, they tend to be most applicable for home office activities.  They may not offer adequate coverage if you conduct other types of business in your home or on your property, such as manufacturing or storing products or inventory.
What is my business structure?

You may require different coverage depending on the type of business structure you choose.  For example, many businesses based in the home are organized as sole proprietorships, but others may be structured as LLCs or corporations.  Even if your homeowner’s policy insures you personally, it may not cover a separate business entity, so it is important to check your existing coverage. The easiest way to figure out whether you have adequate insurance to cover a business in your home is to consult with your insurance agent and relate your business plans and activities in detail.  You may be able to add riders to your homeowner’s policy to cover normal business activities, but you may require additional separate policies for other business needs.

Accidents Happen – At Home

Many homeowner's policies protect you if a guest has an accident and gets hurt while visiting your home.  However, if the guest is business-related (for example an employee, a colleague, client, vendor, or a business delivery person) your homeowner’s policy may not cover accidents or injuries.   According to Fred Steingold in his Legal Guide for Starting and Running a Small Business, accidents are more likely to happen at home than in a well-planned office building.

What Type of Business Are You In?

The type of business you are conducting will also be a determinant in the type of insurance you need, as well as being a factor in the premium costs.   For example, a service or consultative business may require different coverage than a manufacturing or supply business. 

What about a BOP?

BOPS are Business owner's policies, a type of insurance package which provides both property and liability coverage at one premium. While these packaged policies are available to most small and medium-size companies, they are generally designed for businesses conducted in offices outside a home.  Consult with your insurance agent to see if a BOP is appropriate.

Don’t Forget Your Car

Will you be doing business away from home?  Do you use your vehicle for client visits or other business errands?  If so, make sure that your car insurance covers injuries that occur while you're on business.

In Summary

While it is a good start, the above list by no means covers all the insurance nor all the issues you might take into consideration as a business owner.  Health, life, key person, buy-sell, disability, and professional overhead insurance are just a few other important types of coverage you might consider personally and professionally in addition to the property, liability, and worker’s compensation issues discussed above.  An insurance agent or broker can help you identify risks and determine the type of coverage needed in order to fully protect the company, and a financial advisor can also help you decide what other types of insurance can protect and benefit you personally.

Suzanna de Baca is President of Private Capital Solutions Group.  She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667.  Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.
PAS is a member NASD, SIPC.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.