INSURANCE FOR THOSE OPERATING BUSINESSES OUT OF THEIR HOMES

General

Most home-based business owners do not realize that their business property and activities aren’t completely covered under their home-owner’s policies. Many do not think their risks are high enough to justify the cost of adding business insurance. Some of the factors to be considered are whether customers visit the home office, how much inventory is carried, and whether business equipment is carried in an automobile.

Recommendations

Karen Shepard, a licensed insurance broker and account representative with the Small Business Insurance Agency says: “Sometimes, a home-owner’s policy will cover a portion of business property in a home-based business, but homeowner’s policies rarely provide comprehensive business coverage. Most standard policies also place limits on the types of business for which property will be covered. Also, as a general rule, homeowner’s policies do not provide coverage for liability arising out of a business. Owners should check with their agents to see whether or not their policies cover any business property and, if so, how much coverage is provided.” 

In his book, Insuring Your Business, Dr. Sean Mooney, CPCU, notes that there are three ways you can buy the home business insurance coverage you need: (1) Add an endorsement to your existing homeowner’s policy; (2) buy several individual business insurance policies to provide the various coverage you need; or (3) purchase an all-in-one business owner’s “package” policy designed for small and home-based businesses. 

According to Dr. Mooney’s book, one of the benefits of these all-in-one policies is that they reduce the likelihood of potential gaps in coverage. The first place to check for this type of policy is with your existing homeowner’s or auto insurance carrier, since you might be required to purchase these policies together. Once in place, the package policy will effectively extend the amount of personal and liability coverage you have on your home to your business.

Insurance companies are responding to the specialized insurance needs of home-based businesses. One example is State Farm’s new Business in the Home insurance program. The minimum premium is only $150, which buys $15,000 to $20,000 of property coverage. This policy also includes loss of income coverage and comprehensive general liability coverage to help protect owners in the event that personal injury or property damage occurs as a result of business activity. With this much coverage for a small price, it is wise to set aside a part of your savings for this type of insurance.

If the home-based business has only one employee or one independent contractor, the owner should examine the need for workers compensation insurance. 

Note: Information in this SCORE handout was taken from an article in the First Tennessee Business Review third quarter 1998 edition entitled, “Be sure your home-based business is properly insured.”