Let’s be honest -- a home business is just a small business that doesn’t own property on Main Street. And home business owners need to think like those main street types, especially when it comes to business insurance. Opening a business puts your personal assets at risk (some business structures protect you against this more than others) and it is crucial to think about how you can protect yourself by purchasing appropriate home business insurance.
What kind of insurance does a home business require? The answer obviously depends on what kind of home-based business you're operating. Listed below are the main business insurance products available. Take some time to educate yourself on each area, consult your legal and/or financial counsel (yes, your Dad counts) and make some decisions for your business.
Protecting Your Property:
- Business Equipment: Don’t just assume that because your business is run out of your home that your business equipment and assets would be covered under your home owner's policy. Your home insurance will not cover all business losses if there ever is a fire or natural or man-made disaster. You will want to contact your insurance agent to discuss adding on additional coverage to your current policy or looking online for additional business property insurance options.
- Vehicle: If you are using your personal vehicle for business use (i.e. pulling a trailer of equipment to job sites, delivering food or having employees transport supplies) a commercial policy may offer the type of coverage you need. But whether or not you need a commercial policy depends on how you use your vehicle and what company you have it insured with. Check with your current auto insurance provider and learn about different options for business use.
Protecting Your Personal Assets
(also referred to as your rear-end):
- General Liability: This insurance is something to consider if you want to protect yourself from a lawsuit for personal injury or property damages.
- Professional Liability: This is necessary insurance if you are in the business of advice-giving or service-providing. There are a couple different forms for this insurance. For medical professionals it is Malpractice insurance (which is required by law for many doctors). For consultants, lawyers or those providing financial advice, Errors and Omissions (E&O) insurance is recommended.
- Product Liability: Home Businesses selling or manufacturing products should be protected in the event of a customer getting injured as a result of the product. Whether or not you need this coverage and at which amounts will depend on your business type. If you make wedding cakes the likelihood of product disaster is much less than if you build custom cars.
Protecting Yourself:
Business Disability Insurance: Have you considered what you would do if you were injured and couldn’t work? It could be devastating to your business and to your family. It would be prudent to consider a disability insurance policy to help replace your income if there ever were (heaven forbid) an accident or illness that would take you out long term.
Protecting Your Clients:
Bonding & Licensing: From time to time a small business, especially those performing construction or sub-contracting services will be asked to bond their work in advance. In some cases certain types of contractors are legally required to be bonded. This is referred to as surety bonds.
According to JW Surety Bonds, surety bonds are three party contracts between the principal, who performs the service, the obligee, or client, and the surety, who financially ensures that the principal will fulfill its contractual obligation. The principle pays a premium fee to the surety, who in turn pays the obligee if the principle defaults on its contract. An example of this might be if a client hired a licensed and bonded lawnmower and the lawnmower only mowed half the lawn. The surety will then reimburse the client for the original fee charged as well as any legal fees from the investigation.
Buying Insurance:
Now that you have a laundry list of insurance products you think you may need, take a minute to consider your business. Whether or not you need these products just depends on how much risk your business will be involved in and how much risk you are comfortable taking on without protection.
Make sure and do some research online and don’t be afraid to call an existing or new insurance agent just to ask questions. You may be surprised to find that the amount of insurance you need is minimal and completely affordable. Just remember, it is always better to be safe than sorry.
This article is part of a 10-Step Guide on How to Start a Home Business.
Image (c) digitalart/FreeDigitalPhotos.net
