First the bad news: U.S. unemployment is stuck at 9.7%, jobs in some sectors are never coming back and prospects are even dimmer for the big chunk unemployed over 50. Now the good news: the number of people who have started home-based businesses has exploded during this prolonged recession and doesn’t show any signs of slacking off soon. If you’re thinking about switching your career status from unemployed to self-employed, there are some things you need to know about insurance for your home-based business.
The typical homeowners’ and renters’ insurance policies will not adequately cover most home businesses. At best, you’ll have $2,500 coverage for your home office equipment and any inventory on the premises, another $250 for the same stuff away from your home and zero liability insurance if a client is injured while visiting your home on business. Your personal car insurance won’t extend to the business use of your car, either. So at bare minimum you’d be wise to get quotes for business property insurance, business liability insurance and business vehicle insurance.
Business property insurance protects you against the loss of or damage to any items used in the course of conducting your business. That can include computer equipment, office furniture, phones, printers, fax machines, supplies and inventory. When you get quotes of business property insurance, you’ll have to decide between a policy that pays actual cash value or replacement costs. Premiums for actual cash value coverage are usually cheaper, but if your home office catches fire or is wiped out by a tornado, your policy pay-out may not be sufficient to replace everything you lost at today’s prices (aka actual cash value). When you consider that business insurance is tax-deductible, getting the more expensive replacement cost coverage is probably a better bet. Of course, you’ll read the fine print, exclusions and limitations to verify exactly what is and isn’t covered in any kind of insurance. And be sure to adhere to all local, state and federal regulations, codes and licensing requirements for your type of business. Not doing so could nullify your policy.
Business liability insurance is a necessity if anyone visits your home for any business purpose. That includes clients, delivery guys and messengers. One little nip by your dog or one little trip up the stairs could put you permanently out of business if the victim decides to sue and you’re found liable. Business general liability insurance also covers damages to a visitor’s property as well as his person.
You’ll need business auto insurance if you use your car for any business-related activity such as driving to a client meeting, making a delivery or picking up supplies. If your insurance company decides you were conducting business when an accident occurred your personal automobile coverage will not pay out.
Those are the bare-bones business coverage you’ll need. Depending on your circumstances and the type of business you conduct, you may need supplemental policies. For example, if you provide professional services such a accounting, you may want professional liability coverage. Customized, comprehensive coverage can be purchased in packages called BOPs (business owners policies), that can be less expensive and more convenient than buying individual policies.