An estimated 12 million Americans operate a full or part-time
business from their homes, and that number keeps growing.
Although savvy and creative in their own specialties, these
entrepreneurs at times seem bewildered about how to insure their
business against theft, fire and liability. Some believe that
their homeowners policies cover all their home business insurance
needs. As a result, a lot of these home business owners are
uninsured. This brochure contains some guidelines to help owners
of home businesses to properly insure their business.
Property and Liability Insurance
Business owners need both property insurance in case they're
robbed or a fire breaks out in their company's "headquarters" and
destroys equipment and inventory, and liability insurance in case
someone gets hurt using their product or services or falls down
the stairs when coming to see them.
The first tip for business owners is: Don't assume that your
homeowners policy covers your home business. It may, but
probably only to a maximum of $2,500 for business equipment in
the home and $250 away from the premises. It usually doesn't
cover business-related liability, for example, if a customer or
supplier is injured on your property. Your homeowners
policy also doesn't insure your inability to collect your
accounts receivable if your business records are damaged, and it
won't replace lost income if you cannot operate your business due
to damage to your home.
There are three ways you can buy the home business insurance
coverage you need:
Depending on the type of business you operate, you may
be able to add an endorsement to your existing homeowners policy.
Some insurance companies offer a home day care coverage
endorsement for people who operate a home day care service for
pay in their home. Some companies will offer property and
liability insurance for "incidental" businesses operated from
your home. However, each company may define incidental
differently. For example, some companies consider an incidental
business as one that grosses less than $5,000 per year.
You can buy several individual business insurance
policies to provide the various coverages you need, such as
business property, general liability and business income
insurance.
Or you can buy a business owners package policy designed
for smaller businesses, which combines the necessary property and
liability insurance coverages you need in a single policy.
Because home businesses keep popping up all over the
country, some insurance companies have begun to offer what
amounts to a mini-business owners package policy specifically for
home businesses. Some of these policies cover the loss or
destruction of business property on or off premises; the loss of
valuable papers and important business information; personal
injury and advertising liability; accounts receivable up to
$10,000; money lost on premises up to $5,000 and off premises up
to $2,000.
The companies that offer these polices often require that you
purchase your homeowners and auto policies from them. With
those policies in place, your home business policy extends the
amount of personal property and liability coverage you have on
your home to your business. And if a fire or storm makes running
your business impossible, it'll cover expenses and lost income
for up to a year.
These package policies cut the possibility of gaps and
duplications in coverage. But, unfortunately, they're not
approved yet for sale in all the states. The important point is
to talk with an insurance professional and get the most
appropriate coverage for your home business that is available in
your state.
Car Insurance
If you use an auto for your business activities - for
example, transporting supplies or products, visiting customers,
or ferrying employees or customers - you need to make certain
that your automobile insurance will protect you from accidents
which may occur while on business. In many cases, your personal
automobile policy - which covers taking the kids to see their
grandmother, picking up the groceries, or any one of thousands of
personal tasks - can also cover the business use of your auto.
In some cases, however, depending on your type of business and
the kind of vehicles you own, you may need to purchase a separate
business auto insurance policy. A knowledgeable insurance agent
or company representative will be able to determine which
approach would be best for you.
Health Insurance
Don't forget that you'll also need health insurance to cover
medical costs if you become ill or injured, and disability
insurance if you become unable to work because of sickness or
injury. If you have employees, you may want to consider looking
into small group insurance programs for your business. Call the
National Insurance Consumer Helpline - 1-800-942-4242 - if you
have a question about these and other types of insurance.
Compensating Injured Workers
Once you hire an employee, you may need to purchase workers
compensation insurance to cover what it will cost if the employee
is hurt on the job and needs medical treatment and income until
he or she recuperates and can return to work.
If you've incorporated your business, workers compensation
insurance can also cover you, in case you are injured at work.
Since each state has its own set of laws regulating when workers
compensation insurance needs to be purchased, you should check
with your insurance agent or your state's insurance department to
find out how this applies to your business.
Umbrella Policies
An umbrella policy offers you extra liability insurance that
pays for a loss when the limits of your underlying policy are
reached. So, if you're responsible for someone's injury that
requires $150,000 of medical treatment and the liability limit in
your underlying policy is $100,000, your umbrella policy will pay
the additional $50,000.
Keep in mind that most personal umbrella policies that are
tacked onto a homeowners or personal auto policy will cover
liability stemming from business activities and business property
only if covered by the basic policies. Always check your policy
to see how it defines business and business property, or ask your
agent.
Finding an Agent
Instead of winging it alone, home business owners would do
well to assemble a cadre of advisers, including an insurance
agent or company representative. Make sure that the agent or
representative you select is knowledgeable about insurance for
your type of business. You might ask other home business owners,
especially someone who has a home business similar to yours, to
recommend an agent for you. Or check with the state or national
trade association that covers owners of businesses like yours.
It's a good idea to get proposals for insurance coverages
from two or three different agents. Compare the proposals,
prices and your impressions of the agents. If you think the
agent or company representative is someone who would be
supportive and helpful if you had a loss and had to file a claim,
the coverage suggested seems appropriate for your business and
the price seems reasonable, not out of line, then you've probably
found the right insurance professional for you. This person will
help you figure out what your needs are and how to get the best
coverage for you, now and as your needs change.
Asking about Discounts
Insurance companies frequently offer discounts to owners of
businesses with fire detectors or security systems. Some
companies also offer discounts to persons who drive a minimum
number of miles each year. Be sure to ask your agent or company
representative if you're eligible for these or other discounts.
As Your Company Grows
As your company thrives, keep in touch with your insurance
agent or company representative. Just as you would let the
insurance professional who handles your homeowners insurance
policy know if you added a deck to your house or bought expensive
home entertainment equipment, so you should let the agent or
company representative know if your business equipment, inventory
or operation is more extensive than when you bought your policy.
If you neglect to do so and you have a loss, you may find
that your policy has limits far below the actual current value of
your possessions.
Your State Insurance Department
Insurance is regulated by the states, and every state has a
state insurance department. The head of the department is
usually called the commissioner or superintendent of insurance.
These departments can provide you a lot of information about
insurance, and especially the rules that govern it in your state.
This brochure is the latest in a series of publications
produced by the Insurance Information Institute for the small and
midsize business owner. The most comprehensive is "Insuring Your
Business", written by Dr. Sean Mooney, CPCU, senior vice president
and economist at the Institute. The first part of the book
contains chapters on the types of insurance which all business
owners should be aware of, such as property insurance, liability
insurance, workers compensation and employee benefits insurance.
The second section of the book contains information for specific
types of businesses, such as manufacturers, restaurants, construction
firms and trucking companies. To order a copy of the book, which
costs $22.50 plus $2.50 for shipping and handling, call 212-669-9250
or fax 212-732-1916.
