Home-Based Business Insurance – What Coverage Do You Need?

by Neal Frankle, CFP ®

If you don’t have the right home-based business insurance coverage, you could face huge risks. I don’t care if your company is an LLC, Professional LLC, C or S Corp or Sole Proprietor. Home-based business owners owe it to themselves and their families to have the right insurance. And you have to protect your business and yourself with the right insurance at the cheapest possible price.

How?

First, don’t make the mistake of thinking your homeowner’s policy covers you because (in most cases) it doesn’t.

Your homeowner’s insurance doesn’t cover structures used for business purposes. So if you have a fire in your home office, you might not be covered. What if that fire spreads to the rest of your house? How will that “business fire” impact your homeowner’s coverage? Do you want to take the chance of finding out?

On top of that, your homeowner’s policy only covers a small amount of business personal property – and it doesn’t cover data whatsoever.

Let’s keep going. If a client gets hurt when they visit your home office, you’re not covered. Even if a non-business visitor gets hurt at your home while you’re conducting business, there may be no coverage. The last things you need are liability insurance claims to worry about.

The list goes on and on.

I know how much work it is to launch a successful small business. I don’t want you or anyone else to go through all that trouble and then lose it all because you don’t have the right home-based business coverage.

What insurance coverage do you need if you operate a home-based business?

1. Loss-of-Income Insurance

2. Business Personal Property Insurance

3. Personal and Advertising Injury Insurance

4. On-Premise Liability and Off-Premise Liability (Read Liability Insurance for Small Businesses for more information.)

5. Errors and Omissions Insurance (for certain types of business)

How can you get the coverage you need at the lowest cost?

You have three alternatives:

1. Endorsements

You can simply add a rider or endorsement to your homeowner’s policy. This is the least costly way to go. Unfortunately, it also offers the least protection. You have to consider the type of business you run and the real risks.

If you are a service provider and don’t see clients in your home, this might be the way to go. But if you create products, have employees and/or see clients in your home office, it probably isn’t a good choice.

2. Home Business Policy

This is the next step up from an endorsement. This covers business and personal liability, loss of income and damage from fire and theft. This policy can cover you for loss of income, business expenses, equipment and data.

It also can provide coverage for injuries caused by your product or service. You can buy these policies from companies that sell homeowner’s insurance as well as from companies that specialize in home business insurance.

3. Business Owner’s Policy

This is the most comprehensive coverage you can buy. This insurance often covers business structures, property, equipment, data, loss of income, loss due to fire, crime or theft, personal injury.

If you sell and/or manufacture a product, have employees, have clients visit often or any combination of the three, this might be the best choice.

What is the best way to keep your premiums low?

There are a number of ways to get cheap business insurance with premium carriers. Get lots of quotes. Talk to different companies. Don’t make the mistake of thinking that the person who sells you homeowner’s insurance is the best source for your business insurance. Your agent may or may not know anything about business insurance or the risks you face as a business owner. Talk to lots of companies. It doesn’t cost you anything and it may save you a fortune.

And remember, the cheapest policy isn’t always the best. Make sure you compare apples to apples. Make sure the quotes you get are for the same coverage.

Once you know what coverage you need, consider getting a higher deductible. That will save you money.

And ask the providers if there is something you can do to reduce risks (and thereby reduce the premium). Would you save money if you put in an alarm system? What else can you do to reduce the cost?

Remember that your insurance needs are going to change over time. Don’t become complacent. Review your coverage each year. Make sure your coverage is adequate, but at the same time make sure you’re not overdoing it. Cancel insurance if you no longer need that coverage.

Talk to competing companies each year as well. It will take a little time. But it might be the smartest thing you do to safeguard your business, home, retirement and family.

 

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