Does Your Home Business Need Insurance?

Better double check your home insurance policy before your next client visits. Chances are your coverage doesn’t extend to your business.

Why on earth would a home business need insurance? You already have coverage on your house, right? And if a visiting client slipped on your newly waxed kitchen floor while getting a coffee refill, homeowners insurance has that covered as well. I think. And after all, you don’t have time to keep the floor waxed anyway.

Not surprisingly, a recent study commissioned by the Independent Insurance Agents & Brokers of America (IIABA) shows that most home business owners don’t bother with insurance coverage. And yes, that does put the home entrepreneur at risk, since most homeowner policies don’t cover the liabilities and risks of in-home companies.

The survey shows that one in 10 U.S. households run some type of full- or part-time business in the home. Results also show that nearly 60 percent of those households do not have business-related insurance coverage. Of those home companies not covered, roughly 40 percent of their owners said they thought they were protected by some other type of coverage, while almost 30 percent said their businesses were too small to insure.

So, what types of home businesses need insurance? We called IIABA to find out. “In most cases, if it’s a crafting business or piano lessons, most home owner’s policies are sufficient and business related property can be added,” says Madelyn Flannagan, VP of education and research at IIABA. “If you’re running a professional service, though, you should consider a policy that covers liability and business interruption.” She also noted that if you have employees reporting to your home, you will need insurance and you will also have to comply with statutory laws and workers comp.

Flannagan explained the type of risk associated with running a home-based business. “By not having business insurance, home-based business owners are at risk for significant financial losses associated with theft, accidental damage, natural disasters, vehicle accidents and liability if an employee suffers an injury while on the job or a business guest is hurt while visiting the home-based business,” says Flannagan. “Homeowners insurance policies normally don’t provide protection in these situations.”

When I started my own home business, I called my household insurance broker and asked what I needed. I don’t have my editors traipsing through my living room grabbing copy, thank goodness – most of them live far, far away, But it turns out my computer and other office equipment is not covered since I use it primarily for business. Would anyone really ask what the equipment was used for it my house burned down? I don’t know, but who’s taking chances. The additional business coverage was pennies per week, so why sweat it. I have a cute little business rider now on my household policy.

The IIABA survey showed that home business owners with low incomes are less likely to have insurance, but the results also showed that 40 percent of business owners with household income of more than $75,000 per year also lacked adequate business coverage. Flannagan notes that while business coverage varies greatly, a comprehensive commercial policy for a home-based business run as little as $250 per year.

To cover your business, IIABA offered the following tips:

• Check your homeowners policy to see were you’re already covered and where you’re at risk.
• Check business policy options. There is a range of packages designed specifically for home-based companies.
• Consider income protection. If your home-based business is a full-time occupation, you will also want to consider personal coverage and income protections such as life insurance, health insurance, disability protection and workers comp.

We all hate insurance costs, but a little bit of homework may prove that the expense is not really very painful. I’m done with this silly little lecture now. I’ll finish with the reminder that when I added coverage for my company, the cost was less per week than I spend on a chai tea latte vinti.