According to the Insurance Bureau of Canada (IBC) liability is the greatest risk to a home-based business. Why? Many home-based small business owners assume their home insurance policy would cover their business, whether there’s a fire that destroys your business property or a customer slips and falls and hurts themselves while walking into your office. Or they may simply believe that neither scenario will ever happen to him.
Unfortunately, your home insurance will not cover anything associated with your business. That means if a customer or third party sues your business or your company’s property is destroyed, your home insurance wouldn’t cover it. This means you’d pay out of pocket for any lawsuits or to replace damaged property. This can get very expensive!
The reason liability is the biggest risk to a home-based business is the costs associated with a lawsuit. People can sue your business for large sums of money and the cost of legal expenses can also be astronomical. One lawsuit can financially devastate you and your business.
However, that doesn’t mean you can’t get coverage for your home-based business. There are usually two options:
- Add home-based business coverage to your home insurance policy (if available).
- Purchase a separate commercial insurance policy.
Which option is best for you will depend on your business and insurance company.
Home-Based Business on a Home Insurance Policy
Many home insurance companies offer add-ons (known as endorsements in insurance lingo) for home-based businesses. This will extend coverage to include your company’s property such as computers, furniture, tools, equipment and inventory. It will also provide you with basic liability protection, such as if someone slips and falls while visiting you at your home and decides to sue you.
This protection is not offered by all home insurance companies or to all types of businesses. You may need to purchase commercial insurance for your home-based business if you cannot get an endorsement on your home insurance policy.
Commercial Insurance for Home-Based Businesses
Commercial insurance includes a wide range of insurance products designed to protect businesses. Here are a few of the common types of commercial insurance:
- Commercial Property: Covers the repair or replacement of your company’s premises (if owned) and property if it is damaged or destroyed due to an insured peril. Common insured perils include fire and theft.
- Commercial General Liability: Covers legal expenses and related costs if someone sues you after getting hurt or having their property damaged due to negligent acts. For example, someone trips and falls in your office, breaking their arm.
- Professional Liability: Covers legal expenses and related costs if someone sues you for financial loss due to your professional service or advice or failure to provide it. For example, a client accuses you of giving wrong advice, causing them to lose money.
- Cyber Liability: Helps cover costs if your business suffers a cyberattack or data breach, including data restoration, legal expenses, and reputation management.
- Equipment Breakdown: Covers the cost of repairs or replacement if your essential equipment suffers a mechanical or electrical breakdown – something not normally covered by property insurance. If your home-based business relies on essential equipment that would be difficult to replace out of pocket, this is a great coverage to have.
- Business Interruption: Helps cover costs if your business has an insured claim.
Of course, there are many, many other types of insurance available. It’s a good idea to work with an experienced broker who can help you get the right coverage for your home-based business needs.