Many of us who work from home either do not consider that insurance is needed, or think we are covered by a homeowners policy for most home business related events. Either assumption may place you, your home and your business at risk. Proper insurance can be one way to insure that the business is well protected. This article will examine what aspects of a home based business are covered in a standard homeowners policy and then give advice on how best to protect your home and your business.
What do you mean it’s not covered!?
It is simply not enough to rely on a standard homeowners policy when involved in a home business. Here is a break down of some things typically not covered in a standard policy and some examples to put them in perspective):
Other structures, used in whole or in part for "business," are not covered. This means that a detached garage used for a home office is not covered. Also excluded is equipment used in the business whether personal or a client’s. This means that the computer you were fixing in your home based computer repair shop is not covered when there is a fire in the garage.
Any part of a premise rented to a policy holder for business is not an insured location. In this case, renting a hotel room for a network marketing meeting does not insure the location. Under a business policy, the rented room would be covered in case your prospects get a little riotous.
Under the "Special Limits of Liability" section, standard policies do offer $2,500 in recovery for property in the home that is used for business. However, if this limit exceeds $2,500 (like my computer does), only $2,500 can be recovered. To continue with this category, merchandise that is used in a business that is destroyed or stolen is covered up to $2,500. So you won’t be able to store much inventory if you happen to have such a business.
In the same section "Special Limits of Liability," you would only be able to recover $250 for property that is damaged at or stolen from home. This means that when the fancy laptop is stolen, only a fraction of its value can be recovered. If you are delivering merchandise to a customer and it is damaged en route, you would also only be able to recover $250.
Under a business policy, data that are destroyed (accounting records, computer documents, etc.) are covered. Not in a homeowner’s policy. One interesting item is that software is covered if it is available in the retail market. So the new copy of Windows is recoverable but not the custom software for which you paid mucho deniro.
Be careful with the transfer of funds. Homeowners policies do not cover loss arising from business use or dishonest transfer of funds. In layman’s terms, if you accept counterfeit cash, your best bet is to pass it off to someone else, since it is not covered. If someone gives you a bad credit card, you cannot recover that money either.
A homeowners policy does not cover injury to individuals who are hurt at your home when in the course of business. For example, a prospect comes to your home for a meeting. She trips on your rug and breaks a leg. You would be covered for a visiting guest, but since she is at your home on business, there is no coverage.
There is no coverage for a service you perform. Continuing with the example of the computer repair shop, if you fix a computer, it overheats, and burns down the client’s home, you would be personally responsible. There is no coverage from your homeowner’s policy. This also means that services you supply are not covered, such as a home based CPA, who gives bad tax advice and is held accountable when the IRS audits the client.
In fairness to the insurance company, homeowners policies are not written to cover business in the home. Therefore, you may also have broader or more restrictive coverage than those listed above. As always, it is best to check with your insurer, or read the policy closely.
How do I get covered?
There are options for home businesses that want to be protected for any of the above circumstances, or a variety of others. Many insurance companies offer a number of endorsements (changes in coverage) to protect home professionals.
Broaden your existing policy – many carriers offer to go over the existing policy and make endorsements to cover specific events. For example, if you see a lot of clients at home, you may need to extend coverage to include protection for harm to a visitor during the course of business.
Obtain a specific home based business endorsement available by some carriers. Some of these policies are very specific, for example, to insure home based day care centers, or to cover merchandise (especially food products).
Obtain regular commercial coverage called a Business Owner's Policy (BOP).
The third option is possibly the best, because it is tailor made to your business’ needs and affords the most coverage while not breaking the budget. Generally, this is for professionals who work full-time on their home business. Since premiums on most Business Owner's Policies range between $250-500 annually, this is a cost-effective way to protect the business. Certainly, the cost will also depend of the size of the business.
If you are serious about your home based business, highly consider obtaining the right coverage to protect your livelihood. The price tag of the policy may seem like an extra, unnecessary expense, but the cost of a lawsuit of loss of valuable merchandise is enough to warrant up-front protection.
What do you mean it’s not covered!?
It is simply not enough to rely on a standard homeowners policy when involved in a home business. Here is a break down of some things typically not covered in a standard policy and some examples to put them in perspective):
Other structures, used in whole or in part for "business," are not covered. This means that a detached garage used for a home office is not covered. Also excluded is equipment used in the business whether personal or a client’s. This means that the computer you were fixing in your home based computer repair shop is not covered when there is a fire in the garage.
Any part of a premise rented to a policy holder for business is not an insured location. In this case, renting a hotel room for a network marketing meeting does not insure the location. Under a business policy, the rented room would be covered in case your prospects get a little riotous.
Under the "Special Limits of Liability" section, standard policies do offer $2,500 in recovery for property in the home that is used for business. However, if this limit exceeds $2,500 (like my computer does), only $2,500 can be recovered. To continue with this category, merchandise that is used in a business that is destroyed or stolen is covered up to $2,500. So you won’t be able to store much inventory if you happen to have such a business.
In the same section "Special Limits of Liability," you would only be able to recover $250 for property that is damaged at or stolen from home. This means that when the fancy laptop is stolen, only a fraction of its value can be recovered. If you are delivering merchandise to a customer and it is damaged en route, you would also only be able to recover $250.
Under a business policy, data that are destroyed (accounting records, computer documents, etc.) are covered. Not in a homeowner’s policy. One interesting item is that software is covered if it is available in the retail market. So the new copy of Windows is recoverable but not the custom software for which you paid mucho deniro.
Be careful with the transfer of funds. Homeowners policies do not cover loss arising from business use or dishonest transfer of funds. In layman’s terms, if you accept counterfeit cash, your best bet is to pass it off to someone else, since it is not covered. If someone gives you a bad credit card, you cannot recover that money either.
A homeowners policy does not cover injury to individuals who are hurt at your home when in the course of business. For example, a prospect comes to your home for a meeting. She trips on your rug and breaks a leg. You would be covered for a visiting guest, but since she is at your home on business, there is no coverage.
There is no coverage for a service you perform. Continuing with the example of the computer repair shop, if you fix a computer, it overheats, and burns down the client’s home, you would be personally responsible. There is no coverage from your homeowner’s policy. This also means that services you supply are not covered, such as a home based CPA, who gives bad tax advice and is held accountable when the IRS audits the client.
In fairness to the insurance company, homeowners policies are not written to cover business in the home. Therefore, you may also have broader or more restrictive coverage than those listed above. As always, it is best to check with your insurer, or read the policy closely.
How do I get covered?
There are options for home businesses that want to be protected for any of the above circumstances, or a variety of others. Many insurance companies offer a number of endorsements (changes in coverage) to protect home professionals.
There are three main ways to insure a home based business:
Broaden your existing policy – many carriers offer to go over the existing policy and make endorsements to cover specific events. For example, if you see a lot of clients at home, you may need to extend coverage to include protection for harm to a visitor during the course of business.
Obtain a specific home based business endorsement available by some carriers. Some of these policies are very specific, for example, to insure home based day care centers, or to cover merchandise (especially food products).
Obtain regular commercial coverage called a Business Owner's Policy (BOP).
The third option is possibly the best, because it is tailor made to your business’ needs and affords the most coverage while not breaking the budget. Generally, this is for professionals who work full-time on their home business. Since premiums on most Business Owner's Policies range between $250-500 annually, this is a cost-effective way to protect the business. Certainly, the cost will also depend of the size of the business.
If you are serious about your home based business, highly consider obtaining the right coverage to protect your livelihood. The price tag of the policy may seem like an extra, unnecessary expense, but the cost of a lawsuit of loss of valuable merchandise is enough to warrant up-front protection.
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