January 21, 2015
Insuring a One Woman Operation from your Home
Is your business covered in your home?
Do I need Home Based Business Insurance?
What do you mean my home insurance does not automatically cover my business?
Why doesn’t my home insurer want to insure my business?
One of the first two things that small businesses owners / entrepreneurs need to think about are obvious: Incorporation and Insurance.
Both Incorporation, whether it’s an LLC or S Corporation, etc., and Insurance have their uses and values and they are both two of the most important things to review and consider when you get your small business off the ground. They can also both be two of the biggest expenses a start-up business begins with. The third obviously – being rent. I find that clients tend to focus on Incorporation and Rent and ignore the Insurance component.
Home Based Business Insurance:
According to a report more than half of small business owners are under insured and the IAAA states that almost 40% of them are under insured because they believe that they are covered by their homeowners policy (home insurance). According to the California State Department of Insurance: “Most insurance policies offer very little coverage for business equipment.” Liability coverage is also typically not covered at all for your home based business by homeowners insurance.
There are a couple of very popular misconceptions out there regarding one man (woman) businesses and the need for insurance and this is certainly one of the most common series of questions that Insurance Brokers receive.
Myth 1 – I don’t need insurance because I do not have any employees or I work out of my home.
Myth 2 – My business is covered by your homeowners insurance policy.
Myth 1 in its first version “I don’t need insurance because I do not have any employees”- this is just dead wrong, there are countless stories of one woman or one man operations being sued. You may not need workers comp insurance with only one employee, but you still need general liability insurance just the same. In its second version “I don’t need insurance because I work out of my home”- this is a bit more understandable and believable to me, but none the less its equally incorrect and wrong. In an odd way of thinking when you work from home, since many work from home businesses are often not incorporated you may need insurance even more so. What may be part of the reasoning behind people believing this, is that because they work from home, their business have never signed a lease and hence they have never had someone tell them that they will need an insurance policy to complete the lease. To restate, just because you have a work from home business you still need liability insurance and potentially other forms and types of business insurance including business property coverage.
Thinking that your home insurance covers your business is generally a myth.
Let’s address Myth 2 – that you and your business are covered by your homeowners or home insurance policy. This is generally just wrong information. Let’s be clear, it can be possible, especially if you have an extremely small side business….to have a very limited amount of coverage from homeowners insurance. Please keep in mind that I said for a side business, but, you would need to check with your insurance agent and even directly with the homeowners insurance company – and I might suggest that you get it in writing. However, the reality is, that increasingly even side businesses require endorsements onto their standard homeowner policy, let alone full time start-ups. One quick question for the reader of this article – Have you ever read your current homeowners insurance policy literature before from start to finish? What I advise clients to do is the following: The moment your business moves from an idea and hobby to an inspiring business – CALL YOUR INSURANCE AGENT/ BROKER and speak with them about it. Second, ask the direct company that writes your home insurance to write either a separate policy or to add an endorsement onto your existing policy to get you insured immediately.. You may be politely surprised at how inexpensive it can be. If your insurance company is not interested or the price seems high the next step is an obvious one – call an insurance broker. Being an insurance broker myself, there is a bit of a conflict in interest in specifying a broker and not a captive agent, but the honest truth is that a broker may have access to 30 companies to write with whereas captive insurance agents may just have one or two.
Where you are likely to find issues with this?
Getting your small business insured from your home office is likely to be an issue if the classification code (SIC or NAIC or otherwise) you work in is not the “routine” business code that the insurer commonly sees. In other words, the more common, easily understood codes (businesses) can be simple to write. You are not likely to be the first realtor that works out of their house. The other reason I typically see it is with risks that tend to have serious liability concerns. Some of these are obvious – such as ‘demolition experts’, while others are not so obvious such as ‘consultants’. Why is a consultant such a liability risk? It’s a good question that is another story. A good insurance broker will usually have some experience with the more common ones and may be able to get you off and in the right direction with just a simple phone call. The last thing that could be an issue is if you have had insurance claims in the past.
What type of Insurance should you start with? The BOP vs GL:
The BOP vs GL. The BOP is a Business Owners Policy and the GL is short for General Liability. Typically a BOP contains a grouping of interrelated insurance coverages. Usually you will see a Property Section, Business Interruption Coverage, and a General Liability part. Your specific situation will dictate which is better to use and a better value for you and your new start up business. Suffice it to say that if you are a work from home start up then the General Liability policy may be a simpler place to start. That being said, sometimes with new businesses your broker or agent will need to place you where there is an open market with many carriers, sometimes that is in the General Liability market and sometimes that is with the BOP package market, a lot can depend on the industry you are in. For Example – Pet Grooming, it’s not all that common to have pet groomers who work from their home, but it is real common for them to have retail space, therefore there is a good market for the Pet Groomer Business Owners Policies (BOP).
Why would a startup need General Liability Insurance?
Your Start up business would need liability insurance for the same reason any company or corporation needs liability insurance – you may be sued! you may make a mistake! you may take on that one customer that we all dread and have a serious headache. Someone may come to your house for a short business meeting and step on a rusty nail. Does your current unendorsed homeowners insurance cover this? General Liability insurance for business may cover many things. Commercial General liability insurance often covers completed operations – the end product you create, often you can add: Personal Injury and Advertising, you may be able to add Medical Expenses, and Damage to premises rented to you as well. Let a licenses broker explain it all to you.
What type of business property is not covered by my Homeowners Policy?
The first thing that always comes to mind with this question is your computer or computers. But also your printer and any other electronics that are owned/ used by your business. Your paperwork, perhaps your business furniture and for most companies your stock of merchandise will not be covered under your homeowners policy.
How much do one of these policies cost? It’s really not possible to directly address this question in a general sense. It completely depends on a number of factors for your given situation. Some of these factors including the business type (SIC code classification), your annual revenue, your zip code, how long you have been in business, your claims history, a full gamut of other underwriting factors both general and specific to your industry, and many many other things. Contact an Insurance Broker to get either a price indication or a quote.
Which to use?
Other Business Coverages that you may need or consider adding include:
Professional Liability , EPLI – Employment Practices and Liability, Commercial Umbrella, Business Auto, and Workers Comp, among others. A new consideration for insurance these days are cyber insurance policies.
All of these other policies you should be aware of and what they do. Of special note is Professional Liability Insurance (sometimes known as malpractice insurance) and Business Auto. Start-up businesses seem to fall into the same myth cycle concerning their Auto Insurance. Often times your vehicle and the liability it creates is not covered under a standard non endorsed personal auto insurance policy when you used for business reasons- beware!
In the post about Home Based Business Insurance we have dispelled two common myths: ” I don’t need insurance because I do not have any employees or I work out of my home and My business is covered by your homeowners insurance policy.” Obviously as we have discussed – these are both not true. We have also reviewed the types of insurance that work from home businesses and small businesses should consider: General Liability, Business Owners Policy, Professional Liability, Business Auto, Employment Practices Liability, Workers Comp, Commercial Umbrella, among other insurances. We have also explained in depth the need for general liability insurance for the small business owner.
Scott W Johnson -0H11625
Marindependent Insurance Services LLC – 0K10734 – San Rafael and Mill Valley, California – an Independent Insurance Broker
Please see our disclaimer. Reading about insurance is not a suitable replacement for speaking with a licensed agent or licensed broker in your state or jurisdiction.
