Many small business owners of home-based businesses may think that their homeowner’s policies will cover claims that may arise related to their business. Some policies may cover a portion of these claims, but a good many do not. Understanding your homeowner’s policy and its limitations is important to making sure you have sufficient insurance coverage.
What is ?
Homeowner’s insurance covers private residences and insures a home against a number of risks, including fire, burglary, vandalism, etc. It can also provide a number of personal insurance protections as well, covering losses that may occur as a result of loss of its use, the contents of the home and liability insurance for accidents that may happen at the residence.
Homeowner’s insurance policies are typically offered as term contracts, that is the policy is in effect for a fixed period of time. Once the policy expires, it needs to be renewed or coverage will no longer be afforded to the insured. In exchange for coverage, insureds must pay premiums, which vary from customer to customer based on the perceived risk of loss they pose to the insurer.
Many owners of home-based businesses assume that their homeowner’s policy will cover accidents that occur as a result of the operation of their home-based business. While some homeowner’s policies will offer this type of coverage, in most cases it has to be purchased as a rider to the home owner’s policy. Without that rider, claims related to your home business may not be covered by your homeowner’s policy.
If you are running a home-based business and don’t tell your insurer, they may terminate your coverage if they get wind of it. They may also chose to refuse to cover claims as a result of your non-disclosure, even if they’re not related to the home business.
Even if your homeowner’s insurance policy does provide coverage for home-business related claims, the coverage may not cover the type of loss you need handled by your insurance company. Instead, your coverage may only cover property damage, and not offer liability coverage for personal injury, business interruption or other claims that may arise from the operation of your business.
For example, let’s say you run a computer repair shop from your home and your homeowner’s policy provides coverage for property damage arising from the operation of a home-based business. If one of your customers slips and falls while on your property, you may be held liable for damages in a court of law, damages that your insurer doesn’t cover because the policy only extends to property damage.
Also, let’s say your home is damaged in a fire and you lose all your files, including your billing records. A standard homeowner’s policy is not likely to cover losses resulting from your lost ability to collect on accounts receivable.
If you’re getting serious about a home-based business, you’ll likely want to check into purchasing additional coverage to cover claims that may arise from the operation of your business. A growing number of insurers are willing to provide coverage to home businesses, as home entrepreneurship is becoming an emerging insurance market.
The cost for upgrading your homeowner’s policy to cover your home business or purchasing a home business policy may be cheaper than you think. In most cases coverage will not amount to more than $1,000 per year, and may be far less than that. It’s also tax deductible.
Business insurance and taxes
Federal tax law allows businesses to deduct costs of doing business from their tax liability. Most forms of business insurance fall under this deduction. The IRS has worksheets included in its form 1040 and publication 535 to help business owners calculate their deduction. IRS publications 535 and 334 are very helpful to small business owners seeking to determine what expenses they can deduct, including insurance premiums.
Remember that if you’re trying to claim expenses such as home business insurance for IRS tax deduction purposes, you need to have an area of your home exclusively for business and refrain from using it for personal uses. Take pictures of the home business area to better document its use for business purposes in case the IRS should have questions.
Getting the right policy
If you’re considering getting insurance coverage for your home-based business, check out your current homeowner’s policy. See what it covers and what it doesn’t, and talk to your insurer or insurance agent about it just to make sure. Going from there, you can begin searching for a home business insurance policy or rider to your homeowner’s policy that is adequate to cover your insurance needs. Some risks you may want to insure against include:
- Professional liability
- Personal injury
- Property damage
- Advertising injury
- Business interruption
- Contents insurance
By making sure your bases are covered with appropriate insurance coverage, you can help protect your assets should a claim arise as a result of your business operations. One way you may be able to save on your business insurance coverage is to join a professional organization. Professional organizations, in addition to other benefits, can often offer members group rate insurance coverage. By taking advantage of this benefit, you may cut your home business insurance significantly.
When shopping for insurance, it pays to get quotes from a variety of insurers before making a decision on coverage. Different insurers all put differing weight on the various factors they use to determine premiums. For example, insurers may use your credit score as one of their measures of how much risk you pose as an insured, with each insurer assigning a different level of importance to this factor.
By shopping around, you can typically find significant discounts on your home business and other insurance. You can go online and get quotes or you may want to use an insurance agent. Insurance agents work with a variety of insurers and because of their knowledge and relationships with insurers may be able to get you a more competitive rate.
Don’t wait for an accident to happen to test the limits of your homeowner’s insurance policies. Be proactive and evaluate your insurance coverage today, and purchase the coverage you need to protect your business and your personal assets from litigation.