Home Sweet Home: Insurance Strategies for Home-Based Businesses

Oh, the joy of running your business out of your home! As a sole practitioner consultant, I enjoy the benefits of working from home. No rent, no office politics, no standing in line for the bathroom. I also love my five-second commute, with no traffic to avoid except my dog.

If yours is one of the many home-based businesses that seem to be growing in number with advancing technology, insurance may not always be at the forefront of your mind. You're not required to get building insurance, and you might not use your auto in business beyond driving to appointments. The reality, however, is that you have exposures that often aren't considered and definitely aren't adequately protected in your homeowners insurance.

I would like to raise your awareness in three areas of concern for every home-based business:

Liability - Professional and General

Are you a consultant or other professional who doles out advice or publishes information? You may need professional liability insurance. If you can be sued for the information you provide or the things you say and write, don't be caught without this coverage. I recommend no less than a $1,000,000 limit. Many companies specialize in this type of insurance, so contact a broker or check on the Internet. I warn you, it doesn't come cheap; however, neither does a lawsuit!

Do clients or vendors come into your home office? Your personal liability coverage is not set up to protect you for business-related activities. Depending on your business, a businessowners policy (BOP) can often properly protect your liability at a small cost.

Auto Insurance

Even if you're only driving to meet a client off your premises, your business is exposed while you are behind the wheel. How? If you cause an accident while "on the job," and you're incorporated, your business will be brought into a lawsuit. If your business is incorporated, make sure you include Non-Owned & Hired Auto Liability on the General Liability portion of your BOP.

The bottom line is every business has an auto exposure simply because they drive for some business function (i.e. client meetings, pick up supplies, education, etc.). Make sure you are properly protected either through your personal or business policy.

Please note - If you're not eligible for a BOP because of the type of business you operate from home, you can still get a General Liability policy.

Property

Every home-based business is going to have some business property. Whether you have products in your garage or furniture in your office, you need to insure business property outside of your homeowners insurance, which limits the value of business assets. You can adequately insure your computer, furniture, inventory, and artwork through the BOP mentioned earlier.

Most personal homeowner's policies have a maximum they will pay for business contents - between $1,000-2,500. You may or may not have a high value, but the best way to insure yourself is with a commercial policy.

Life and Disability

Hopefully, your overhead is low and your income is up. Protect your ability to maintain that income with disability insurance and protect your family against the loss of your income with life insurance. Talk to your accountant about making these policies business expenses by paying for them through your business.

Believe it or not, you are more likely to become disabled than to die by the time you hit 65 years of age. Depending on the nature of your career, you could lose your ability to bring in income AND become a source of additional expenses. Most disability carriers require you to have two years in business before they will offer this policy, but that shouldn't stop you from looking into it when you can.

Here's your homework: Take the time now, after reading this article, to assess your insurance situation. Just because you work from home doesn't mean you aren't in danger of losing everything. So just like any business would, consider what could be catastrophic to your business and then take steps to transfer the risk to an insurance company. Use higher deductibles where possible to keep costs down.