Many solopreneurs who work from home forgo purchasing insurance for their home businesses. Some don’t believe it is necessary or assume their homeowner’s policy provides sufficient coverage. Others are concerned about the premiums. In truth, a separate insurance policy or rider is necessary for business owners who work from home, and in most cases it is relatively inexpensive to purchase an insurance policy for a home-based business.
Why Home-based Business Owners Need Liability Insurance
Anyone who you do business with over time – whether it’s a customer, vendor or delivery driver – could suffer an injury while on your property. For example, a vendor is meeting at your home office to pitch her new product line, she slips on the ice on your walkway and breaks her leg.
Since the visit pertained to your business, the homeowner’s policy you carry likely will not cover her medical bills. If you need to cover those expenses out of pocket, the costs could be devastating to your bank account and your business. 1
Standard homeowner’s and renter’s policies mostly likely won’t cover unexpected legal expenses pertaining to your business, such as claims of libel, slander, false imprisonment or theft of your intellectual property. You might believe “this would never happen to me,” but you can never predict what other people will do, say or claim about you.
Think about losses associated with these potential scenarios, along with lost inventory, supplies and equipment due to a fire, flood or other disaster. Can you afford to replace these items if your home and its contents were completely destroyed? If not, then you need additional business liability insurance.
Compare Policy Options Based on Needs
Depending on your insurer, regulations in your state and the type of business you operate, you may be able to purchase a rider to your homeowner’s or renter’s policy to insure your business. These riders run around $100 per year, so the cost is minimal. On the other hand, this additional coverage typically caps out at approximately $2,500 – which may leave you scrambling for funds if a terrible accident, disaster or lawsuit arises. 1
Self-employed entrepreneurs with home offices who need a little extra coverage might also consider an in-home business policy. These policies offer liability insurance separate from a homeowner’s rider and can provide more extensive coverage. Costs range from $250 to $500 and typically cover up to $10,000 in claims. 1
As your business grows, say you expand your operation, add a storefront, entertain more business on site or hire support employees, you should also expand your insurance coverage. At this point, it’s time to step up to general business liability insurance (also know as commercial general business liability).
Expect higher premiums – from $750 to $2,000 annually – to compensate for the added coverage your growing business requires. These policies can be purchased alone or as a component of a business owner’s policy, which combines liability and property insurance. 2
Contact the Professionals and Weigh Your Options
MBO Partners does not provide legal, accounting, financial or insurance advice. Contact an attorney, accountant or financial/insurance advisor in your state for information pertaining to your specific circumstances.
In addition, liability insurance is just one type of insurance that independent constractors need to consider. A reputable insurance agent who specializes in business or commercial insurance can help you determine which types of coverage you should purchase.
Independent consultants need to be honest with themselves regarding the value of their business's assets and what they can afford to lose. This assessment will come in handy when it’s time to determine the amount of coverage the business needs.
If you already have a rider or other business liability policy, take time to review it with your agent annually and make sure your coverage is adequate and up-to-date. The SBA also recommends contacting multiple insurance providers to compare policy options and costs. This is a smart practice, whether you’re buying business liability coverage for the first time or evaluating current coverage. 3
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2. Beesley, C. “General Business Liability Insurance – How It Works and What Coverage Is Right for You.” Small Business Administration website, www.sba.gov. Available at http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/general-business-liability-insurance-–-how-it-w; updated April 30, 2012. Accessed Jan. 15, 2014.
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News and notes for independent professionals and their clients. This is the October 17, 2016 edition.