Published: February 2014
Whether starting a home-based business due to financial needs, such as a layoff, or simply pursuing a lifelong dream of becoming an entrepreneur, you never want to find yourself without adequate insurance protection. Some home-based business owners may assume their homeowners insurance will provide the necessary protection in the event of a loss. But often, that is not the case—so it's important to educate yourself on what type of insurance you'll likely need to purchase to protect your new venture.
The typical homeowners insurance policy does not extend coverage to your business, according to the U.S. Small Business Administration. The personal property coverage of your homeowners insurance policy might not cover your business equipment at all, or the coverage limits (the maximum amount your insurer will pay in the event of a loss) might not be high enough to cover your business-related items.
Your business faces many other risks that likely are not covered by your homeowners insurance policy, such as liability. For example, suppose a client visits your home to discuss a business proposal. The client exits your office and falls over an extension cord, breaking his leg. Your policy might not cover you in that situation. In addition, a homeowners policy does not typically protect against losses such as stolen computer data, accidental copyright infringement or an injury to one of your employees.
There are two ways you can approach these potential gaps in insurance coverage. If your small business is in the startup phase and you have few business visitors and no employees, your insurance carrier may offer an endorsement to your homeowners policy that provides additional coverage to help protect you in the event of a small business loss. However, here are some business insurance coverages you might want to consider.
A business insurance policy can help protect you against many of the common threats at-home business owners face. Here are some of the coverages that might be particularly helpful for your home-based business:
- Business property coverage: This can help protect items such as computers, signs, merchandise and other business-related property against certain causes of loss, depending on your policy.
- General liability coverage: This type of coverage can help protect you in the event that someone files a lawsuit against your business due to an accident, an injury or a claim of negligence, according to the SBA.
- Data compromise coverage: Hackers are increasingly targeting small businesses, and such an attack can result in customers' or employees' data being stolen from your company's computers. This type of coverage can help you recover from such a situation.
- Employment practices liability coverage: Once you hire even one employee, this type of coverage may be a good idea, in case you ever face allegations of wrongful termination or other employment risks.
- Business interruption coverage: This provides business income in the event your home-based business operations are interrupted by a covered loss, such as a fire or a tornado.
There are also several other types of coverage, including equipment breakdown coverage and business auto coverage, that you may want to consider to help protect your at-home business. Talk to your business insurance agent for more information.