Covering the risks of home-based businesses
The self-employed who rely on home insurance for business exposures are risking their personal assets if they have a claim.
When we finally put COVID-19 behind us, it’s expected more people than ever before will be working from home. Some will be small businesses that carved out a home office and began working remotely when the lockdowns were announced in March. Others will result from a probable surge in home-based startups.
Those who make work-at-home a permanent part of their lives will likely feel more freedom than they do at a corporate office, but they should know that their homeowners insurance will, in most cases, fall short of covering all of the potential business risks they face and require separate coverage.
Homeowners’ policies often exclude or only protect a minimum amount of business equipment coverage, leaving a home-based business liable if anything were to happen, including catastrophes and natural disasters. The self-employed who rely on their homeowner’s policy are risking their personal assets if they have a claim.
The BOP
This is a great opportunity for independent agents to educate their clients on the benefits of having a business owner policy (BOP) for their home-based business. A BOP covers them in the event of an accident or emergency and is recommended for many small-business owners, but especially for home-based business owners. It provides general liability coverage and business equipment coverage for computers, printers, office furniture, and more.
Agents can speak with clients about how their work is changing and ask if they are starting a home-based business. If the answer is yes, they can offer insight into why a BOP is an essential part of operating a business from home. Whether the business involves selling a product or service, BOP coverage is affordable and should cover a small-business owner’s inventory, supplies, business needs, equipment, and all other tangible items.
Keep in mind that depending on the type of business, additional endorsements may be needed for extensive services or equipment. The independent agent should understand what the policy limits are and if further endorsements are needed based on the business type.
Specialized coverages
When writing a BOP for a small-business client, it’s important to learn more about a business and the associated exposures to make sure additional policies are not necessary outside of the BOP. Then agents can discuss whether additional coverages or limits are needed.
For example, business owners should consider client traffic to their homes, travel to their clients’ homes and deliveries of supplies from vendors. Anyone coming to the home-based business could become a liability if they trip and fall on-site or get hurt as a result of a visit. If a home-based business is using a personal vehicle to conduct business, the business owner should have a commercial liability automobile insurance policy for complete protection.
For anyone starting a home-based business and manufacturing a product, they can be held liable if their products are faulty or become spoiled in any way. For instance, if the business makes a food product that spoils and sickens their customers, the customers may be looking for more than a refund, and product liability coverage is important.
Other risks and coverages that should be considered are:
- Cyber liability coverage: Most small businesses rely on technology and cloud computing, and home technology arrangements are less likely to be as secure as on-site company networks and devices. Consider the home-based business taking payments via a mobile device or computer via the cloud, or the business owner reliant on a home laptop that other family members use when the business isn’t open. According to Verizon’s 2020 Data Breach Investigations Report, 28% of global breaches involved small business victims, and of the 23,000-plus incidents the top threats included hacking (55%), malware, and the use of stolen credit cards (about 20%), and phishing (15%). There’s a need to look at cyber protections for each home-based business.
- Professional liability coverage: Also called errors & omissions (E&O) coverage, professional liability is essential for home-based businesses that offer professional services such as advice or consulting to individuals or other business owners. E&O, when it has the proper limits, covers defense costs and damages awarded to a customer in a legal judgment.
- Workers’ compensation: If the home-based business is not a sole proprietor and has more than one employee, agents should share the state requirements for workers’ compensation, since laws differ from state to state. Fines may be implemented on home-based businesses if they need workers’ compensation and don’t carry it.
Small-business owners, especially those self-employed for the first time, will appreciate the advice from their independent agent. Without a separate business policy in place, there could be serious financial costs in the event of a claim, and the homeowner or renter may be at risk of losing their personal assets. It can be a high price to pay.
It is vital for an agent’s insurance clients to have separate coverage for home-based business assets and personal assets. A BOP will protect homeowners from the loss of any tangible property. As independent agents align with reputable carriers who understand these lines of business, they can offer educated advice and thorough coverages to meet the needs of home-based business owners.
Steve Tombarelli is senior vice president, business expansion & innovation at SIAA (Strategic Insurance Agency Alliance, Inc.). He can be reached at stevet@siaa.net.
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