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Homeowner’s Insurance Doesn’t Cover At-Home Businesses

Over 51% of small -business owners operate out of their homes
of home-based businesses aren't properly insured

The most recent data from the US Census shows that more than half of small businesses are home-based. Unfortunately, 60 percent of home-based businesses aren't properly insured, and the owners don't realize that their homeowner’s insurance leaves them woefully unprotected. Adding a rider might be sufficient for some businesses, but those with greater liability and valuable commercial property should consider buying a Business Owner’s Policy (BOP). Because a BOP bundles General Liability with Commercial Property Insurance, insurers can offer these fundamental coverages at a lower rate to qualifying small businesses.

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Important Insurance Policies for Home-Based Businesses

More than half of the businesses in the United States operate out of private homes. Many of these home-based business owners mistakenly believe their Homeowner's Insurance policy protects their commercial assets. In reality, home-based business owners need to purchase the appropriate commercial insurance just like any other small-business owner.

The wide variety of at-home businesses makes identifying the appropriate policies for your client a little tricky. However, knowing that their Homeowner's Insurance leaves their commercial assets vulnerable gives you a good starting point. For reference, here are several policies home-based business owners should consider purchasing:

General Liability Insurance

No business is too small to be sued. General Liability Insurance protects your client when a third party claims they suffered bodily injuries or property damage because of your client. If a delivery person is injured while dropping off a work-related package to your client's home, a GL policy may pay for the deliveryman's medical expenses. Additionally, General Liability travels with your client, protecting them at appointments, events, or sales meetings. For example, if a your client's handcrafted candles cause a fire at a craft show, their GL policy may pay attorney fees, court costs, and judgments or settlements if they are sued for damages.

Property Insurance / Business Owner's Policy (BOP)

Your client's home-based business probably relies on tools, supplies, equipment, and inventory that are not covered by their Homeowner's policy - even if they are stored in their residence. Property Insurance pays for the repair or replacement of business materials if they are lost or damaged by a covered event. Your client might also qualify for a Business Owner's Policy (BOP) , which bundles General Liability and Property Insurance in a convenient and affordable package.

Errors and Omissions (E&O) / Professional Liability Insurance

If your client provides professional services, guidance, or advice from their home, they should consider purchasing Errors and Omissions (E&O) coverage. Also called Professional Liability Insurance, this policy protects your client when their customers claim they suffered financial losses because of your client's negligence. For example, say a customer accuses your client, a freelance tax advisor, of making an oversight on their annual return. E&O Insurance covers the legal expenses associated with the claim.

Hired and Non-Owned Auto Insurance

Even though your client conducts business from their home, chances are they'll need to drive to events, appointments, worksites, and meetings. Some may choose to rent a car, subcontract a delivery driver, or hire a car-sharing service. Others may have employees use personal vehicles for work errands. Hired / Non-Owned Auto Insurance can cover liability expenses in case an accident occurs in these non-owned vehicles.

Workers' Compensation Insurance

Most states mandate that employers carry Workers' Compensation Insurance . This covers medical expenses and lost income when your client's employees suffer occupational injuries or illnesses. Even if your client runs a one-person home-based business, they may still want Workers' Compensation to protect themselves when a work ailment keeps them from their job.

Tips for Covering Home-Based Businesses

Home-based businesses have a couple of options for risk management, like:

Adding a rider to their Homeowner's Insurance

Homeowners can add a rider for their commercial assets. This option is usually less expensive than the others, but it may not provide enough coverage for businesses with expensive equipment, regular visitors, or more than one employee.

Buying an In-Home policy

An In-Home policy offers a broader spectrum of coverage than a rider by covering the policyholder's liability and loss of income from fire, theft, and other disasters.

Purchasing a Business Owner's Policy (BOP)

BOPs keep the cost of protecting commercial assets low by bundling General Liability and Property Insurance into a single package. This option is particularly attractive to home-based business owners with greater liability and property exposures.

You and your client need to consider these options carefully. Purchasing the least expensive option isn't a good deal if it doesn't protect their assets.

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