News from Dave | Home Based Business

Home Based Business! Does your homeowners policy provide coverage? Good question.

Do you operate a business from your home? Maybe an accounting practice or desktop publishing business, how about a hair salon or maybe you just work from home for your employer. Do you own business equipment, computers, and office furniture? Do clients visit your home office? In today’s world over 50% of small business is conducted from personal residences. Many people either have not addressed the issue of insurance or believe their homeowners insurance policy will provide coverage in the event of a property or liability loss. The fact is, very little coverage is afforded to the business owner from a homeowners insurance policy.

A typical homeowners policy provides approximately $2500 in coverage for business property located in the home and usually $500 or less for property off the premises. When it comes to liability the policy provides virtually no coverage at all. The fact is a homeowners policy is not designed to protect business exposures.

Don’t fret; there are solutions to this problem. If your business is very small, meaning you don’t own more that a few thousand dollars of furniture, computer and office equipment. You have no employees and the space used in your home is less than 500 square feet. A quick solution is to add the Incidental business or office occupancy endorsement to your homeowners policy. This is not the greatest solution but it will provide more coverage than currently exists in the policy. There are a few additional qualifying factors that must be met before this endorsement can be used. The typical premium cost for this endorsement is usually less than $100.

A better solution is to purchase a Commercial Package Policy or Business Owners Policy. The type of policy used will depend on the type of business you are operating. These types of policies provide a much broader form of coverage than the homeowners endorsement and coverage can be specifically tailored for various situations. In addition to the basic property and general liability coverage, these policies usually provide coverage for business interruption (see the article in the February/March issue for an explanation). The commercial policies also do a better job of protecting business property that typically is off the premises, computer equipment, property of others as well as liability exposures arising out of the business operations and occurring away from the residence premises.

Commercial policies are a bit more costly in premium. They can range from about $250 up to $1000, but typically will fall in around the $500 level. In my opinion the best solution fore the home based business is to use the commercial policy form. You’ll get a lot more bang for your premium buck.

Aside from the differences between the homeowners insurance endorsement and the commercial insurance policy forms. Your business may have other needs requiring attention. For example, if you have employees, the state of Pennsylvania requires you to carry Workers’ Compensation insurance. Many business owners believe that if they pay people using the IRS 1099 form, they are exonerated from carrying workers’ comp. It’s a good thought, but in many circumstances the business owner may be held liable for their work related injury.

If you use your car for business purposes or own a few trucks, a business auto policy may be better suited to your needs. At least, a business use rating class on your personal auto insurance policy would be appropriate.

In summary, if you are operating any type of business out of you home. The best time to find out that your homeowners policy will not respond to a claim relating to that business is after it occurs. Take a few minutes to contact your insurance professional and discuss your operation. He or she will be able to advise you of the best solution to your situation.