Technology creates more opportunities for home-based businesses everyday and with that comes increased revenue and assets for businesses owners. According to Forbes Magazine in 2013, 52% of all small businesses were home-based.* And that number has continued to climb in the past few years. As home-based businesses grow, so do the misconceptions around insurance needs for these types of businesses or the common belief that insurance does not protect these operations at all. Today we are looking to dispel some of the more common myths about insurance for home-based businesses.
Myth No. 1: My homeowner’s insurance covers my home-based business.
INCORRECT. Homeowners insurance was designed to protect your home, your personal property, and liability claims associated with your home only. This is separate from your business property, liability or operations – just because it so happens to be out of your home does not mean it is considered part of your “home”; in the insurance company’s eyes, these are two different beasts altogether. For example, your son has a friend over who trips over the hose in your backyard and breaks his leg – your homeowners liability coverage would most likely cover this claim. However, if you run a wedding planning business out of your home and a client trips over the hose in your backyard and breaks his leg, your homeowners insurance would not cover the claim. You would need a premise liability or commercial general liability policy for your business to cover this claim because the person injured is related to your business operations. Your homeowners insurance is not designed to cover your business needs and risks, so do not depend solely on this type of insurance.
Myth No. 2: My operation is so small, I don’t really need insurance for my home-based business
INCORRECT. Your business operations may be small but your assets can be great and insurance is designed to help protect your assets (meaning your business, income, payroll, home, etc.) A single jewelry artists creates jewelry in her garage and sells it online making $100,000 per year in total sales. This is enough to pay the mortgage on her house and living costs. But a fire burns down her garage and all her tools in it and she happens to open the wrong email and becomes the victim of a phishing attack, stealing all her online information. Her homeowners policy would cover the cost of her burned-down garage but none of the property within it because it was all tools used for her business. Additionally, she has no insurance coverage for her online sales or online practices. The jewelry artist must shut down her business for months to rebuild the garage, re-buy her tools and rebuild online stability and trust with her customers; this bump in the road could have catastrophic financial implications. Small businesses have limited resources and one disaster can be enough to put it out-of-business and the owner in debt; insurance is crucial for small businesses because it helps moderate these disasters so a small business can survive and rebuild with financial help.
Myth No. 3: I only need premise liability insurance for my home-based business.
INCORRECT. Every business is different and so every business will have different risks. To rely on a premise liability policy only is like relying on coolant to keep your car from ever breaking down – as we know, there are hundreds of other reasons a car may break down and not just from overheating. Some home-based businesses will rely heavily on internet sales and may need to explore cyber liability policy options to protect the business owner and their clients from cyber attacks on their online sales and activities. Other businesses rely heavily on supplying it’s customers with a service or product and may need professional liability insurance to help protect them from a client who suffers a loss from the business owners mistake; this could end-up in an expensive lawsuit that lands the business owner in bankruptcy. Other businesses may find themselves growing quickly and find that their assets and workforce are increasing rapidly with the company’s growth; coverage for their business property and workers compensation policies need to be increased. Every operation is different so it is best to consult with an agent or broker to find out if and what type of insurance coverage is needed so your home-based business can put its best foot forward.
Insurance was created hundreds of years ago in order to help keep companies afloat in times of distress. As the economic world continues to change, so does insurance – let’s make sure you have the right protection for your type of business.