Insuring Your Home Business
An estimated 12 million Americans operate on full or part-time business
from their homes, and that number keeps growing. Although savvy and creative
in their own specialties, these entrepreneurs at times seem bewildered
about how to insure their business against theft, fire and liability.
Some believe that their homeowners policies cover all their home business
insurance needs. As a result, a lot of these home business owners are
uninsured. This brochure contains some guidelines to help owners of home
businesses to properly insure their business.
Property and Liability Insurance
Business owners need both property insurance in case they're
robbed or a fire breaks out in their company's "headquarters"
and destroys equipment and inventory, and liability insurance in case
someone gets hurt using their product or services or falls down the stairs
when coming to see them.
The first tip for business owners is: Don't assume that your homeowners
policy covers your home business. It may, but probably only to a maximum
of $2,500 for business equipment in the home and $250 away from the premises.
It usually doesn't cover business-related liability, for example, if a
customer or supplier is injured on your property, at all. Your homeowners
policy also doesn't insure your inability to collect your accounts receivable
if your business records are damaged, and it won't replace lost income
if you cannot operate your business due to damage to your home.
There are three ways you can buy
the home business insurance coverage you need:
- Depending on the type of business you operate, you may be able to
add an endorsement to your existing homeowners policy. Some insurance
companies offer a home day care coverage endorsement for people who
operate a home day care service for pay in their home. Some companies
will offer property and liability insurance for "incidental"
businesses operated from your home. However, each company may define
incidental differently. For example, some companies consider an incidental
business one that grosses less than $5,000 per year.
- You can buy several individual business insurance policies to provide
the various coverages you need, such as business property, general liability
and business income insurance.
- Or you can buy a business owners package policy designed for smaller
businesses, which combines the necessary property and liability insurance
coverages you need in a single policy.
Because home businesses keep popping up all over the country, some insurance
companies have begun to offer what amounts to a mini-business owners package
policy specifically for home businesses. Some of these policies cover
the loss or destruction of business property on or off premises; the loss
of valuable papers and important business information; personal injury
and advertising liability; accounts receivable up to $10,000; money lost
on premises up to $5,000 and off premises up to $2,000.
The companies that offer these policies often require that you purchase
your homeowners and auto policies from them. With those policies in place,
your home business policy extends the amount of personal property and
liability coverage you have on your home to your business. And if a fire
or storm makes running your business impossible, it'll cover expenses
and lost income for up to a year.
These package policies cut the possibility of gaps and duplications in
coverage. But, unfortunately, they're not approved yet for sale in all
the states. The important point is to talk with an insurance professional
and get the most appropriate coverage for your home business that is available
in your state.
Car Insurance
If you use an auto for your business activities - for example,
transporting supplies or products, visiting customers, or ferrying employees
or customers - you need to make certain that your automobile insurance
will protect you from accidents which may occur while on business. In
many cases, your personal automobile policy - which covers taking the
kids to see their grandmother, picking up the groceries, or any one of
thousands of personal tasks - can also cover the business use of your
auto. In some cases, however, depending on your type of business and the
kind of vehicles you own, you may need to purchase a separate business
auto insurance policy. A knowledgeable insurance agent or company representative
will be able to determine which approach would be best for you.
Health Insurance
Don't forget that you'll also need health insurance to cover
medical costs if you become ill or injured, and disability insurance if
you become unable to work because of sickness or injury. If you have employees,
you may want to consider looking into small group insurance programs for
your business. Call the National Insurance Consumer Helpline - 1-800-942-4242
- if you have a question about these and other types of insurance.
Compensating Injured Workers
Once you hire an employee, you may need to purchase workers
compensation insurance to cover what it will cost if the employee is hurt
on the job and needs medical treatment and income until he or she recuperates
and can return to work.
If you've incorporated your business, workers compensation insurance
can also cover you in case you are injured at work. Since each state has
its own set of lows regulating when workers compensation insurance needs
to be purchased, you should check with your insurance agent or your state's
insurance department to find out how this applies to your business.
Umbrella Policies
An umbrella policy offers you extra liability insurance that
pays for a loss when the limits of your underlying policy are reached.
So, if you're responsible for someone's injury that requires $150,000
of medical treatment and the liability limit in your underlying policy
is $100,000, you umbrella policy will pay the additional $50,000.
Keep in mind that most personal umbrella policies that are tacked onto
a homeowners or personal auto policy will cover liability stemming from
business activities and business property only if covered by the basic
policies. Always check your policy to see how it defines business and
business property, or ask your agent.
Finding an Agent
Instead of going it alone, home business owners would do well
to assemble a cadre of advisers, including an insurance agent or company
representative. Make sure that the agent or representative you select
is knowledgeable about insurance for your type of business. You might
ask other home business owners, especially someone who has a home business
similar to yours, to recommend an agent for you. Or check with the state
or national trade association that covers owners of businesses like yours.
It's a good idea to get proposals for insurance coverages suggested seems
appropriate for your business and the price seems reasonable, not out
of line, then you've probably found the right insurance professional for
you. This person will help you figure out what your needs are and how
to get the best coverage for you, now and as your needs change.
Asking About Discounts
insurance companies frequently offer discounts to owners of
businesses with fire detectors or security systems. Some companies also
offer discounts to persons who drive a minimum number of miles each year.
Be sure to ask your agent or company representative if you're eligible
for these or other discounts.
As Your Company Grows
As your company thrives, keep in touch with your insurance
agent or company representative. Just as you would let the insurance professional
who handles your homeowners insurance policy know if you added a deck
to your house or bought expensive home entertainment equipment, so you
should let the agent or company representative know if your business equipment,
inventory or operation is more extensive that when you bought your policy.
If you neglect to do so and you have a loss, you may find that your policy
has limits far below the actual current value of your possessions.
Your State Insurance Department
Insurance is regulated by the states, and every state has a
state insurance department. The head of the department is usually called
the commissioner or superintendent of insurance. These departments can
provide you a lot of information about insurance, and especially the rules
that govern it in your state.
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