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Insurance for the Home-based Entrepreneur
How to Make Sure You Are Covered
By Richard Albert
You make that familiar left hand turn into the old neighborhood and
immediately sense something is wrong. Call it intuition. As you round
the last corner to your street, the red flashing lights confirm your
worst fears. Firemen hose down the remnants of all that remains of your
home. A few wisps of white smoke mark what had been a spectacular 3
alarm blaze just an hour ago.
Fortunately all of your loved ones are with you in the car. But you own
and operate a home-based business. Are you covered by insurance? Are you
now bankrupt?
If you are like the majority of home-based business owners, youre in
serious trouble. Im surprised at the number I talk with who dont have
insurance coverage to protect their home business operations and
equipment from theft, damage or loss. Many even assume they are covered
when they are not.
Although too often neglected by home entrepreneurs, in surance should be
an important part of any business plan. Minimal in surance coverage
brings peace of mind and could save your business in the event of a
fire, flood, theft or other uncontrollable occurrence. Ask yourself the
question if your home was completely destroyed by fire today, would
you have a business tomorrow?
Insurance Problems for Home-Based Entrepreneurs
Home business owners face no less than an under-insurance crisis. The
main problem is a mistaken belief that existing insurance policies
automatically protect home businesses. In fact, many homeowner policies
contain language and clauses that explicitly exclude coverage for
business uses and business property. Examples of other insurance
problems for home business owners include:
Business use of an automobile Accidents while on a business trip or
business property stolen from a car may not be covered under existing
property and automobile policies.
Theft or damage to home office equipment Often not covered under
homeowner or apartment dweller policies, which usually cover only
personal property.
Healthcare Inadequate or lack of coverage altogether, in higher
proportions than the non-home business population
Disabilities Lack of coverage to protect income in case you become
disabled
Coverage Not getting the correct types.
Existing homeowner policies voided due to a business being operated
from the home
Special coverage lacking for computers and software.
Liability no coverage for people who visit your home for business
purposes or for liabilities that result from business activities outside
the home.
Partnerships No liability coverage for actions of partners
Business Interruption Almost a wholesale lack of coverage by home
business owners.
Home offices separate and/or detached structures not covered under
homeowner policies
Do any of these sound familiar?
Bad Assumptions about Insurance
The reasons too many home business owners neglect getting the right
amount of insurance run the gamut of excuses, some completely
irrational. Many are not even aware of the risks they take when
operating a business from the home. Bad assumptions behind these excuses
and misconceptions include:
A belief that it cant happen to you, which, chances are, is correct.
They then regret not having insurance when the odds turn against them.
Belief that business operations are covered by existing non-business
policies. The basic misconception of home business owners.
Special insurance policies cover every possible related occurrence.
Not true. Policies only cover what is in the fine print.
Risk is too small to justify the cost for insurance. Insurance costs,
however, are based upon risk characteristics.
Costs beyond budget. If you cant afford to replace your business out
of pocket, then insurance must be part of that budget.
Belief the costs are too much. An extremely competitive insurance
market should mean you only pay what is reasonable.
A part-time operation is OK for existing homeowner policies. Wrong
again. To an insurance company, any level of business activity is
business activity.
Common activities related to your business dont fall under the
heading of business activities. For example, this might include a
delivery man visiting your home. These kinds of activities are business
activities.
Home business owners dont think they can obtain business insurance.
Yes, you can!
How Much Insurance Do You Need?
Meet with an insurance broker to evaluate your business needs;
everyones are different. Many brokers represent more than one insurance
company. Let them do the checking. Review carefully the different types
of insurance policies and what they cover, as follows:
Homeowners Personal property and possessions from damage due to fire,
theft, flood and vandalism.
Automobile Damage due to collisions, uninsured motorist, theft,
vandalism and liability related to personal use. Extent of usual
business coverage is transportation to and from work. Automobile might
need to be declared as a business vehicle in order to maintain coverage.
Health Preventative health care and illness
Computer Additional coverage beyond homeowner policies for software,
hardware and data.
Business Property Damage or loss to business equipment in the home
office.
Small Business More extensive coverage for damage or loss to business
inventory and equipment. Can include basis coverage for business
liabilities, loss of earning, and errors and omissions.
Liability Visitors to your property for business purposes. Basic
liability covers slip and fall, dog bites, etc.
General Liability Accidents to either you or another party while doing
business away from home. More extensive coverage than basic liability.
Can provide special liability coverage to protect against claims and
damages that result from the rendering of services or sale or products.
Disability Loss of income and earning if unable to work for an
extended period of time due to illness or injury.
Business Interruption Losses from inability to conduct business due to
fire, flood or disaster, most often requiring that you close or relocate
your home office. Covers cut-backs in business revenue while you
recover. Can provide funding to meet cash flow obligations such as
payroll and loan payments.
Malpractice Damages and claims that result from providing products or
services. Covers injury or loss to the client. Can include errors and
omissions and product liability insurance.
Workers Compensation Work-related injuries for employees. Highly
influenced by state regulations.
Automobile Busi ness Busi ness property in car or claims and losses
that result from business use of a vehicle. Cov ers situation beyond the
transport to and from work. Transport goods and merchandise.
How to Keep Insurance Costs Affordable
Insurance should be phased in as your home business moves through the
primary phases of start-up, growth and expansion, and long-term
stability.
Business Start-up: As maximum capital is needed and cash flow is
minimal, maximize the use of existing policies. Computer equipment
often the largest investment can be covered by riders to existing
policies. Floaters and endorsement to homeowner and auto policies will
provide limited protection for business activities in the home or
vehicle, as well as an expansion of personal liability if you carry out
business activities away from home. Consider declaring one of your
vehicles as a business vehicle and adjust its policy to cover business
activities. Additional annual coverage might run from $250 to $1,000.
Growth Phase: Business expands and cash flow starts to catch up. At
this point you may want to consider particularly if over 25 percent of
your home is used for business activities separate policies for
business property, small business and general liability. Separate
insurance for commuters is highly recommended. Additional annual
coverage might run from $1,000 - $1,500.
Long-term stability: Your home business is established and successful.
Future growth will be more predictable. Make a long-term assessment of
your insurance needs. Carefully review if previous expansions to
existing coverage are still sufficient. If you have formed a successful
business relationship with one or more sole proprietors, consider
Partnership insurance. If you have any employees, review the requirement
for workers compensation insurance. If the business is a full-time
endeavor, consider disability insurance. For more established operations
that entail considerable business services, you may want to obtain
malpractice and errors and omissions insurance. Full-time home-based
businesses may require Business Interruption insurance. General
liability insurance can be added to small business policies. HBM
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