Starting a home-based business is both exciting and challenging. It can be demanding financially and take up a lot of your time, but it can also be incredibly rewarding.
An important but often overlooked aspect of home-based businesses is insurance. Some people may assume their home insurance will cover their home-based business while others forget about insurance entirely – or even think their business is too small to need it.
Unfortunately, it isn’t until something bad happens that business owners realize they don’t have insurance to cover them.
This article explains how to insure a home-based business and why this coverage is necessary for even the smallest of businesses running out of your home.
Why do you need insurance for a home-based business?
There are a few reasons you need to insure your home-based business, including:
- Your business property and liability are not covered by your property insurance (home, condo or renter’s insurance).
- Your business may require speciality liability coverage to ensure you’re covered.
- Insurance helps reduce the financial impact of an unexpected event such as a fire or lawsuit and is essential if you can’t cover such expenses out of pocket.
- If your business property or equipment is financed, you may be required to carry insurance.
- Depending on your industry/profession, your governing body may require or recommend insurance coverage.
- Clients may want to work with an insured business to protect themselves.
What type of insurance do home-based businesses require?
The type of insurance your home-based business will require will depend on a few factors:
- Your business operations
- If you have employees
- Your annual revenue
- Where you operate
- If you have company vehicles
It will depend on your individual situation as to what type of insurance you need. The smallest businesses may be able to get a home-based business extension on their property insurance. This will extend coverage to protect your property and liability. For example, if you knit and sell your products online, this coverage would likely be a great option.
Otherwise, you’ll need to purchase separate business insurance. There are many different types of business insurance coverage, so it’s important to discuss your situation with a knowledgeable insurance broker. The two basic coverages for home-based businesses are property coverage (which protect your company’s property like inventory and equipment) and commercial general liability which offers basic liability protection if someone is hurt or has their property damaged by your negligent actions.
Additional protection is available, including:
- Professional Liability Insurance (also known as Errors and Omissions Insurance)
- Product Liability Insurance
- Cyber Insurance
- Equipment Breakdown Coverage
- Commercial Vehicle Insurance
- Business Interruption Insurance
The best way to get sufficient coverage is to call your independent insurance broker and set up a meeting to talk about your business. Your broker will listen and ask you questions about your company before talking about the potential risks you face.
How much will it cost to insure a home-based business?
The cost will depend on your business but will start at $500 per year. Your premiums could be higher – it very much depends on your individual business operations, annual revenue and many more factors.
How do you insure a home-based business?
The first step is to contact your broker or insurance company. You’ll need to disclose your business and they can advise if you can get a home-based business extension on your property insurance or if you’ll need separate business insurance. A broker will get you quotes from different insurers and compare price and coverages. They can advise which protection you need and which is nice to have.
The key is to remember that insuring your home-based business should be a priority—a task that you address as soon as you think of starting a business, not after you set up your company and start working.
