Operating a home business can be a great way to realize your entrepreneurial dreams and create a portable career, but your business needs insurance. If you don’t properly insure your home business, you may be putting your assets at risk. Home-based business owners often assume their businesses are covered by personal insurance policies. Every industry is different, so you’d be wise to consult with a business insurance company to make sure you have the protection you need in place.
Protecting Personal Assets
If your business runs into financial trouble, your personal credit will be ruined if you can’t pay back a debt. With the proper insurance coverage, you won’t have to worry about your personal assets if your business tanks. For example, if your home has a fire, the homeowners policy would cover the structure of your home and personal contents, but not the business assets & equipment. Another disaster would result if the business owner was using his personal vehicle for business purposes and has an accident. If your auto insurance does not cover business use, it won’t pay for the damage. Check with ALL of your current insurance policies to see if you need extra coverage.
Homeowner’s Umbrella Policies
If you don’t add extra coverage for your business, your homeowners policy generally doesn’t cover business losses. If you have any business equipment, make sure all of it is covered, add liability and replacement income coverage just in case.
Liability coverage may be needed especially if the product being sold is defective. Those that make or sell homemade beauty products, personal care items or food products may have to purchase special policies.
If you don’t think the product you sell carries any liability risk, you could be wrong. For example, if you create a part that goes into another product (such as an assembly), you may have liability if that system fails. If a client falls on your property and sues you, your homeowners policy may not cover the expenses. If you have employees, you need additional coverage for workers’ compensation. Many states require this and you could be in big trouble if someone gets hurt.
Should you get comprehensive or limited coverage?
It all depends on your situation. For most virtual business, small tweaks to your homeowners policy endorsements may be adequate. Your existing insurance company can quickly add the extra coverage you need to protect your business equipment. In addition, a homeowner’s liability endorsement may be suitable if you have very few business-related visitors on your property.
Entrepreneurs should consider comprehensive coverage via in-home business policies or separate business owner policies. Various companies, such as Hiscox, offer these policies, as well as stand-alone policies.
If a fire damages your home and you have to temporarily suspend your business, some of these policies will pay for lost income. They may even pay for the extra costs associated with operating out of a temporary location such as a hotel. You also should look into protection against lawsuits related to the products and/or services you sell.
More business policies
Business specific owner policies for small and medium businesses will provide more extensive coverage than in-home business policies. They also can cover businesses that operate in multiple locations. I have a policy through Hiscox that protects my business with errors and omissions insurance as well and it’s a little over $1 a day. Well worth the cost if, God forbid, I’m ever sued.
For businesses owned by multiple people, each partner should consider life insurance that names the others as beneficiaries in case one partner dies.
Various business structures will have specific needs. If you operate a sole proprietorship, and your business is essentially you – you are 100 percent personally liable for everything. I URGE everyone currently operating a sole proprietorship to incorporate immediately. It doesn’t cost much, probably under $100, and it will protect you and your family from a potential nightmare. If you don’t, everything that may go wrong, every liability and every debt will become your personal problem. If you incorporate you are shielded from personal responsibility.
Ask the experts
This may seem complicated, but it doesn’t have to be. Look for an established business insurance company and give them a call. They will ask the necessary questions and get a policy in place that will fully cover you. Don’t play the guessing game and just go with the cheapest option. You may be missing a critical area that needs to be covered.
Get insurance immediately
Don’t wait until you are making a profit to get a policy in place. As soon as you have your EIN, your next step is buying insurance. If you have an established business or are working under the table and think you can get by without this, you may find yourself in a horrible situation. Consult with a business insurance company immediately to get a policy in place and/or review the coverage you already to have to make sure it’s sufficient as your business grows.
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