Home Based Business Insurance

These days, the breadth and depth of home based businesses is astounding and more people are working from home. You treat your home business just as you would an in-office business, so why should your insurance coverage be any different?

Have you been operating under the assumption that your homeowners coverage will be sufficient to protect your business in the event of a disaster or injury such as this? If you have, you’re not alone. The Independent Insurance Agents and Brokers of America, based in Alexandria, VA, estimate that a full 60 percent of home-based business owners are under-insured because they incorrectly thought their homeowners insurance would fill the bill. In reality, that policy may not cover vital items such as your business files, office and computer equipment and other aspects of your operation. More sobering still, your homeowners policy might even be nullified if your insurer learns that you are operating a business out of your residence. The only way to be sure that all aspects of your company are secure is to either add endorsements to your homeowners policy or purchase home-based business insurance.

Endorsements To Your Homeowners Policy

It is usually not difficult to get an additional rider or endorsement on your homeowners policy that has increased limits or covers set risks. In general, these are only available to businesses with modest annual profits. These types of homeowners insurance riders are available in most states and can be less time-consuming to obtain.

By definition, an endorsement is an addition or change to an already existing homeowners insurance policy. It alters the scope or terms of the policy. Also known as a rider, an endorsement can go into effect at the beginning of the policy, mid-term or when it is time to renew. This legally binding amendment is used to change your policy in order to give you more options.

Although it can be used to delete items, most people obtain endorsements to add home-based business items to their homeowners coverage. The endorsement remains in force until the expiration of your policy and can be renewed at the same time. Because is a legal document and becomes part of your policy, you should always keep these items together in a safe place for easy reference.

What Kind Of Home Based Business Insurance Is Right For You?

There are three types of home based business insurance: general liability, professional liability and business owner’s policy insurance. General liability insurance for home-based businesses does the following:

• Protects you if a third-party person makes a personal injury claim against you. Believe it or not, you can be sued if someone trips over your briefcase while you are making a work-related visit to their office.
• Protects you against personal injury claims, including libel and slander. These involve the making of untrue oral remarks that defame you and lower your reputation in the eyes of your community as a whole and cause you to take legal action against the person who made these remarks. If the verbal untruths being spread about you are spoken, it is slander; if they are put into writing, it is considered libel. A good policy will protect you against both.
• You are also protected in case of damage to property such as office space that you might be renting from someone else.

Professional liability insurance is often called “errors and omissions” insurance because it protects you if you are sued for negligence, even if the incident was not your fault. In the event that you need legal help, the insurer often covers the cost of legal defense as part of the policy. Because insurers understand that home-based businesses come in all shapes and sizes, they can customize your policy to cover the areas that are particularly relevant to you. It is crucial that you take steps to shield yourself and your company as quickly as possible. Do everything you can to avoid gaps in coverage that could be devastating in case of an injury or lawsuit. Do this even if you are covering your company during a time when no services are performed, and no visitors come to your home for business reasons. In the end, your premiums will be lower as a result of your prudence.

A package business owners policy insurance (known as a BOP) provides general liability insurance and also protects your office equipment, including furniture, computers, copiers, printers, etc. This is a simple, pre-fabricated product that suits the needs of most small to medium-sized businesses, particularly if you work out of more than one location or manufacture products off-site. Recently, the types of enterprises BOP’s can cover has been expanded to include some convenience stores and dry cleaners, fast food restaurants up to 7500 square feet and contractors.

You might have big plans for your home based small business. If it continues to grow, you will probably want your insurance to expand right along with it. Ultimately, you might need to purchase workers’ compensation, business vehicle, and life insurance.

• Workers’ compensation insurance protects both you and your employees in the event that a worker has an accent or falls ill on the job. This insurance pays for the employee’s medical bills and lost wages while simultaneously protecting you against being sued for negligence or damages. Workers’ compensation insurance is required in most states, but each has its own specific set of laws and regulations. As a result, you need to check with your specific state’s insurance licensing commission to understand all the details that apply to you.
• Business vehicle insurance covers any personal and work vehicles that you use during the course of your job. Do you make deliveries, visit clients, go to customers’ homes or visit farmer’s markets or trade shows? Keep in mind that any travel you do for your business puts you at risk of accidents. Whether they are your fault or not, you need to be covered by a commercial policy that will protect your professional and personal assets in the event of a catastrophe.
• Life insurance is something that many small business owners fail to consider. The harsh reality is that you probably have people who depend on your income, people such as family members. If you were to die suddenly, where would they be? That’s where life insurance comes in. Furthermore, they may not be in a position to take over your business or pay back the loans you may have taken out to get your business going or to expand it.
• A personal life insurance policy would help your family pay off your business debt and assist them with living expenses. If you have business partners and one of you dies, you can get a buy-sell agreement on your life insurance policy that will enable the remaining partners to buy out the interests of the one who has passed away at a pre-agreed price.
• Finally, you can purchase a key person life insurance policy that will protect your business if you or another pivotal person suddenly dies by making a payment to the other owners.

Underwriting Guidelines For Home-Based Insurance

To put it simply, the insurance industry is focused on risk. If the client they insure has little chance of ever filing a claim, the risk to the company is low. Conversely, a policy holder whose business is in a more danger-prone industry or who has not taken steps to promote safety and minimize the possibility of lawsuits is quite likely to file a claim at some point.

The insurance company’s priority is to evaluate a potential customer’s level of risk, classify accordingly and arrive at a decision of what, if any, policy would best meet their needs. That is the basic job of the underwriter. Questions of particular interest to the underwriter will center on your business: How long has your company been in existence? What is your annual revenue? Do you have a history of paying your bills on time? How is your credit? Do you make it a standard practice to use contracts when interacting with clients? If so, are they well-written and thorough?

The underwriter will also want to know about your workplace in order to assess the likelihood that someone could be injured there. After an underwriter collects and analyzes information about your business, your company could be placed in one of the following categories:

• Preferred risk. If you are placed in this category, it means that you are at below average risk for filing a liability claim or of being sued. As a result, your premium will be lower than average. Obviously, this is the most desirable category.
• Standard risk. Companies in this category display a typical level of risk and are charged average premiums.
• Sub-standard risk. Businesses that are at higher exposure to risk are placed in this category. Because it is statistically more likely that they will file a claim, their premiums are higher.
• Postponed status. This is a temporary designation that you will be placed in if your underwriter is awaiting information that has bearing on your case or if a specified amount of time needs to pass before you can obtain coverage. You will eventually be re-evaluated and placed in one of the other more permanent categories.
  >As the name implies, those with this designation are not given policies because the company perceives their level of risk as being too high. In most cases, you can re-apply for a policy but not until after two years.

Your insurance agent is a vital part of the underwriting process. This is because your agent is in a unique position to speak with you and to obtain valuable and complete information about many aspects having to do with the running of your company. It is the agent’s role to record the answers to all items on the application accurately and completely and to answer any questions you might have.

Furthermore, your agent has a duty to submit your completed and signed application in a timely manner. Should you be placed in “postponed” or “declined” status, your agent is responsible for explaining the reasons for these decisions.

Typical Range Of Rates

One great thing about running your business out of your home is that you don’t have an extensive piece of property such as an office or a warehouse to insure. As a result, you don’t need to worry about high overhead costs. What’s more, your insurance premiums might be significantly lower than they would be if you were working in a larger space.

As with any coverage, the amount you will pay is determined partly by what type of business you run as well as the level of risk in your industry. However, an average home business policy usually will cost you somewhere between $250 and $500 per year. Keep in mind that this figure does not cover errors and omissions; it only reflects the cost of coverage for lost data and computer equipment and perhaps some additional liabilities. For about $50 extra, you can also purchase $2,500 worth of business property and slip-and-fall coverage.

One way to save money on your premiums is by purchasing a business owners policy, commonly known as a BOP. This bundled package is made up of several policies combined into one. Additional strategies you can employ to save some money on your premiums include installing a security system and fire alarms. If you employ anyone to help with your company, be sure to let your agent know about any training protocols you have. Premium costs can also be lowered if you are willing to raise your deductible. This is the amount you pay out of pocket before your insurance coverage kicks in. If you are at low risk for claims and do not have a history of them, you might save quite a bit in the long run.

State Regulations And Minimums

When you first set up your home-based business, you needed to check with your city and state to be sure you were in compliance with all regulations such as those that applied to taxes and zoning. You need to adopt the same conscientious attitude when it comes to obtaining insurance coverage for your home-based company.

If you are not sure of your particular state’s regulations, one of the best places to learn the facts is your state’s insurance licensing bureau or commission. They can tell you what you need to know to be in compliance as well as being an excellent resource for you as your business grows.

What To Look For When Comparing At Home Business Insurance Quotes

As you shop around for the best home-based business insurance policy for your company, there are several things you can do to get the most for your money.

• Consider getting a rider or add-on to your homeowners policy. This is especially good for one-person operations. Although this rider will raise your homeowners insurance premium, it is cheaper than getting a separate policy. As long as you don’t have a lot of equipment or heavy traffic coming into your business, this is an affordable and easy solution.
• Look into an in-home business policy. One step up from a rider, it offers you coverage if documents are lost or business equipment is damaged or stolen. It also provides coverage in the event of theft or injury for as many as three employees.
• Purchase a business owners policy (BOP), particularly if you have more than $10,000 in assets. This bundled coverage is more comprehensive and protects you against a higher amount of loss.
• Ask about errors and omissions coverage. Also known as malpractice or professional liability insurance, this type of coverage is necessary for any business that provides advice or services for a fee to clients. It protects against costly mistakes that you or an employee makes that cause injury or financial loss to a client. This coverage also pays the cost of your legal defense and any settlements you are required to pay.

Tips For Keeping Costs Low And Reducing Risk

Although it might be tempting to forego home-based business insurance to save money, doing so would put your financial future in serious jeopardy. It only takes one mistake or one accident on your property to put you in the crosshairs of a lawsuit. Between legal costs and what you might need to pay to settle, you could lose the business you have worked for so long to build.

The bottom line is that although you should never deny yourself this all-important coverage, there are definitely things you can do to save a few pennies here and there.

• Speak to an agent who understands your particular industry and can provide you with the best policy for your line of work. Not only can this save you money but also it enables you to get customized insurance that addresses your unique needs.
• Keep premiums low. Some ways to accomplish this are to invest in a good computer backup system, install sprinklers and a security system and keep your grounds free of barriers and slippery spots.
• Regularly review your risks and what needs to be insured, particularly if your business is growing or changing. Consider your equipment, your business contents, your inventory and any separate properties you own or rent.
• Conduct regular audits of your systems and trainings of your employees.

 

Frequently Asked Questions About Home-Based Insurance Coverage

When will my home-based business insurance take effect?

The best way to get an absolute answer to this question is to ask your agent. Policies differ, and there is no single answer to this question. In general, you definitely have activated coverage once you have received your policy and made your first premium payment. However, some policies go into effect as soon as you make the agreement with your agent and sign the application.

How does home-based insurance differ from general liability coverage?

General liability coverage is just one type of home-based insurance. It protects you against personal injury claims as well as libel and slander and property damage. Along with professional liability and business owners coverage, these are the main components of home-based business insurance coverage. As we have discussed above, depending on the size and type of business you own, you may not need all of these.

Do I need commercial auto insurance for my home-based business?

Do you have a vehicle that you use exclusively for work purposes? Do you sometimes utilize your personal car or truck for work? If you answered “yes” to either of these questions, it is definitely worth looking into commercial auto insurance. This would cover your work and personal vehicles that are being used on your job. If you fail to have this coverage and get into an accident, your personal automobile insurance might not cover the loss.

What is an umbrella policy and should I get one?

Think of umbrella coverage as a combination between a security blanket and a catch-all. When any of your other types of coverage fail, that’s when your umbrella insurance kicks in. It definitely comes in handy in the event that you find yourself at the business end of a major lawsuit.

For many home-based businesses, relying solely on homeowners coverage is not a financially sound decision. Take some time to carefully consider all aspects of your business operations as well as the extent to which you deal with walk-in customers or give advice to clients. These factors are warning signs that your homeowners coverage is probably insufficient to protect your valuable company. Explore your options, seek help from reputable sources and choose wisely. Comprehensive coverage is one of the best gifts you can give to yourself and your company.