Per the US Bureau of Labor Statistics (BLS), about 30% of American homeowners run home-based business. Unfortunately, over 50% of these businesses are underinsured. While many reasons contribute to this, about 40% of the underinsured home-based business owners are not aware of their underinsurance status largely due to ignorance. Specifically, according to a recent survey conducted by the Independent Insurance Agents of America (IIAA), many Americans running home-based businesses mistakenly believe that their homeowners insurance policies cover their businesses adequately. The truth is that a standard home insurance policy only covers up to $2,500 worth of damage on the premises of your home-based business. This is where home business insurance comes in handy. Take a look at 5 benefits of purchasing a home-business insurance policy according to Smart Business Insurance
Home-Business Insurance – An Overview
Home-based business insurance policies are designed to protect a home-based business from financial losses caused by named perils, events, or situations. It’s important to note that different types of home businesses require different types of home insurance coverage. For instance, a cyber liability insurance policy is essential if your home business involves storing third parties’ confidential information digitally.
Benefits of Home-Business Insurance
Here’s a look at some specific types of home-business insurance policies and their benefits.
- Business property coverage
According to the Information Insurance Institute (III), business property insurance provides coverage for your business belongings, including, among others, computers, stationery, and furniture. Common perils covered under this policy include, among others, fire, water damage, smoke damage, theft, and vandalism.
- Errors and omissions coverage
If you run a professional service-based business such as consultancy from home, you should consider purchasing the right errors and omissions insurance policy. Also known as professional liability insurance, this policy protects your business against third-party claims and lawsuits that may result if you make a professional mistake, say, breach a contract. Take note that you don’t actually have to make a professional mistake for a client to sue you.
- Third-party liability coverage
This policy covers the cost of third-party injuries and property damage that may happen on your business premises. For instance, if a client visits your home and suffers a slip and fall injury within or around your home, your liability insurance will pay for the resulting medical costs.
- Business automobile coverage
As mentioned earlier, you should always choose insurance policies based on your industry. With this mind, if you use your personal car for business-related purposes, say, for visiting job sites, you should carry business automobile coverage. This is because your standard auto insurance policy may only cover a small portion of damage on your personal vehicles provided, they are used for business operations.
- Product liability coverage
If your home business involves selling products, you should carry product liability coverage to protect yourself and your business against defective product lawsuits. To put it another way, your product liability insurance would cover the legal costs, including damages, resulting from a product liability lawsuit.
Tips for Buying Home Business Insurance
- Assess your risks – The ultimate goal of business insurance is to protect your business from unforeseen risks such as fire damage. This means that you should identify potential risks that may harm your business for better decision-making.
- Identify essential insurance policies – Typically, the nature of risks at hand will determine what policies you purchase for your business. As such, use your list of potential risks outlined in the first step and research the best insurance policies that can provide the proper coverage.
- Create a budget – The cost of business insurance depends on factors such as the types of policies, risks at hand, and sum insured. For better planning, ensure you create a feasible budget for your home-business insurance. Take note that cheaper policies will likely have lower policy limits as well as more exclusions, which means, you’ll have a large amount to pay out of pocket in case of peril, although this is not always the case.
- Shop around – Different insurance companies have varying terms of service. For instance, some insurers offer insurance discounts for mitigated risks. Therefore, ensure you compare policies from different insurance carriers and choose one that suits your needs.
- Review your coverage needs – As your business scales, your insurance needs will also change. The same applies to if you relocate to another neighborhood. For instance, if you move to a crime-prone town, your home-business insurance costs will likely rise due to increased risk. This means that you should always review your business insurance coverage, preferably annually, to stay up-to-date with your insurance needs. Remember, your insurance premiums can also go down if you mitigate risks or move to a safer neighborhood.
If you operate a home-based business, you should carry the right home insurance coverage to protect yourself and your business. Depending on the nature of your home business, you may need to carry home than liability coverage and business property coverage.