Three Options for Home Based-Business Insurance

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In 2007, the U.S. Bureau of Labor Statistics reported that 66 percent of all self-employed individuals in the United States worked from home full-time. Further, according to the 2012 Global Entrepreneurship Monitor Report, nearly 60 percent of these companies have been in business for three years or more. Nevertheless, a recent survey conducted by the Independent Insurance Agents of America revealed that 40 percent of all home-based businesses are uninsured or underinsured.

Home Based-Business Insurance

Home Based-Business Insurance

The reason? The majority of home-based business owners mistakenly believe that their homeowner’s insurance will pick up the tab if they incur a loss.

Homeowner’s Insurance Does Not Cover a Business Loss

In fact, homeowner’s insurance provides little or no protection in the event of a business loss. Most policies cap business property damage at $2,500 and provide no liability coverage for the business at all. For example, if a client comes to your home to pick up an order and slips and falls, your homeowner’s policy would not pay for her medical bills. Your business would.

Three Home Based Business Insurance Options

Generally, you have three options for home-based business insurance. These include:

  • An endorsement to an existing homeowner’s policy: In some states, a home-based business owner can add an endorsement to his homeowner’s policy that provides higher limits for certain types of property damage at a cost of about $15 per year. This type of endorsement typically doubles the coverage limit for business equipment, for example, from $2,500 to $5,000. Endorsements are usually only available to businesses that generate less than $5,000 in annual revenue.
  • In-home Business Insurance: Specifically designed for in in-home businesses, these policies provide up to $10,000 in property damage coverage for about $200 per year. Most policies also include liability coverage of between $300,000 and $1 million, as well as business interruption insurance, which covers lost income, payroll, replacement of documents and ongoing operating expenses in the event something happens to your home (such as a flood or fire.)
  • Business Owners Policy: Business owners insurance is available for most home-based businesses that operate in the United States, including those who do up to $3 million in gross revenue annually. The coverage is similar to that offered by an in-home business insurance, but more broad. For example, a business owner’s insurance policy covers damage to your business property that occurs as a result of a variety of perils, such as theft, fire, flood or power surge. It also provides coverage for business property losses that occur off-site — for example, a camera or laptop that is stolen from your car when you are visiting a client’s home.

Business owner’s policies also provide general liability coverage, which protects you if, in the course of doing business, you damage another person’s property left in your care or someone is injured in your home. The coverage also applies to the cost of litigation, such as attorney’s fees, court costs and compensatory damages, in the event you are sued. Business interruption coverage is typically included as well.

If you or your employees travel extensively in the course of doing business, you may also add inland marine insurance to your business owner’s policy. This coverage applies to damage that occurs while your property is in transit. For example, if you were driving to a trade show and were involved in a car accident, inland marine insurance would pay to replace any equipment or inventory you lost as a result.

Choosing a Home-Based Business Insurance Option

If you run a small, home-based business that generates limited annual revenue, an endorsement to your homeowner’s insurance policy or in-home business insurance may be right for you. These options typically cost less than a business owner’s policy and provide adequate coverage for businesses with little equipment or revenue. However, gaps in liability coverage may leave your business – no matter how small—at risk.

Before deciding which insurance option is the best fit for your home-based business, talk to an agent and explore your coverage needs. Our business insurance experts can design a package tailored specifically for you, no matter how large or small your business is. Contact us by calling 516-292-3780 Monday through Friday between 9 a.m. and 6 p.m., or request a free consultation online now.

 

Source: Rocky Mountain Insurance Institute

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