I was talking to a homeowners client the other day when the conversation turned to his new business. Seems he had started a computer repair business out of his home. The alarm bells in my head started to go off. I knew before I asked the question that he did not have insurance for his new business. And I also knew why he didn’t have insurance before I asked that question. Most home-based business owners assume their homeowners insurance will provide the necessary protection in the event of a loss. But for the most part, they are wrong. The typical homeowners insurance policy does not extend coverage to a business. While some homeowners policies might have a small amount of coverage for business personal property, they generally do not provide the broad exposures a home based business needs.
A home based business faces many other risks that likely are not covered by your homeowners insurance policy, such as liability insurance. Suppose a client visits your home to discuss a business proposal. The client exits your office and falls over an extension cord, breaking his leg. Your policy might not cover you in that situation. In addition, a homeowners policy does not typically protect against losses such as stolen computer data, accidental copyright infringement or an injury to one of your employees.
Home insurance covers people’s homes. Using the home for other purposes that your insurer is not aware of, such as operating a home business, may invalidate your coverage. So what do you do? First talk to your insurance agent about what you are doing as a business. Some businesses have a very low risk/exposure, like a bookkeeper. If you have a low risk business, many insurers will allow you to endorse coverage to your policy to give you premises liability and business personal property coverage. But that is usually all the coverage you can get under a homeowners policy. Keep in mind, this would only apply to an individual/sole proprietor. If you have incorporated your business, your will need to get a commercial insurance policy.
So let’s get back to my computer repair/homeowner customer and look at some of the things he thought were covered by his homeowners policy. And by the way, he created an LLC (limited liability company) to protect himself from personal liability.
Business personal property – the stuff his business owns. Since he is an llc, no coverage is provided by his homeowners policy.
Property of others. Those computers he brings home to repair, no coverage.
Liability insurance. This is a big one folks. If you do something wrong, people will sue you. There are many different exposures that people can (and will) sue you over. There is the trip and fall exposure on the property. The damaging of a customer’s computer including accidently deleting information stored on the computer. How about the car accident delivering the computer back to the customer. The list goes on.
So the business does well and he hires someone part time to help him out. Now he has picked up a workers compensation exposure and an employment practices liability exposure. Neither of which is covered under his homeowners policy.
But all of these exposures can be insured through a commercial insurance policy. Depending on the business and the coverages needed, a commercial insurance policy might cost as little as $500 a year. I always advise our clients to not assume something is covered, but to call and ask. That’s what an agent is there for, to provide knowledge and advise.