Insurance Needs Change When Home is Your Workplace
For the millions of U.S. small business owners who operate exclusively from home, not understanding the differences between personal and commercial insurance liabilities can be costly. Owners who assume their personal insurance policies for home, auto, life and health will automatically protect their business interests may be in for a few surprises.
Homeowners' or renters' insurance policies are rarely adequate to cover the unique needs of a home-based business. Most individual policies limit coverage for business property losses or damages to $2,500 in the home and $250 away from home. These policies tend to exclude business-related liability claims from persons injured on your property, and provide no protection to sustain the business during downtime associated with a property loss. To close these gaps, owners may want to investigate the purchase of a business owners policy or general liability, business property and business interruption/continuation insurance.
While all auto insurance policies are similarly structured, there are important distinctions between personal and commercial vehicle coverage. Typically, commercial vehicle insurance carries higher liability limits, and includes special provisions for rented and other non-owned vehicles, including employees' cars driven for company business. If you own or lease a vehicle almost exclusively for business use, make sure the business name is listed as the principal insured. You also may consider increasing coverage to protect permanently attached items such as a generator or storage unit.
Since home-based businesses often cease to exist once the proprietor dies, life insurance is most often viewed as a personal, non-business concern. This approach may present significant risks if your home-based business is a partnership. One way to help secure the organization's future is Key Person life insurance. This type of policy names each partner in the business as beneficiary on the other's policy. If a partner dies, the other can use the life insurance payout to buy out the deceased partner's heirs, pay off outstanding loans or other obligations, or continue operations until a replacement employee is hired and trained.
For small, home-based businesses, finding affordable health insurance for you and your employees used to be a challenge. But without health insurance, it is conceivable that one catastrophic event could dissolve the business. Today, small and home-based businesses have a variety of sources for purchasing HMOs, PPOs, EPOs and other popular health insurance plans at group rates. And under the Affordable Care Act (ACA), business owners and the self-employed who purchase coverage through new healthcare marketplaces may qualify for premium tax credits and subsidies. Failure to purchase appropriate health insurance could result in a tax penalty.
Workers' Compensation Insurance: Not Just for Big Business
New business owners may be surprised to learn that most states require you to purchase workers' compensation insurance even if you have only one employee. These plans protect the business from claims by employees who experience a work-related injury or illness either on business premises or during business operations. Payouts typically cover medical expenses, rehabilitation costs and lost wages. If you don't have workers' compensation when an incident occurs, your business may be liable and you will lose the limitations on an employee's ability to sue you specified in the workers compensation law.
Home-Based Business Insurance Tips and Considerations
- Since business property coverage is limited and professional liability insurance is not included in standard homeowners' or renters' insurance policies, check with your agent to see if your business qualifies for a homeowners' policy endorsement that modifies the standard policy to meet your specific needs.
- To reduce net out-of-pocket health insurance costs, ask your state insurance commissioner if you can participate in a Health Flexible Savings and Spending Account (FSA).
- Home-based business owners interested in disability insurance may want to negotiate for a shorter payout waiting period after the onset of disability. Note that a shorter waiting period will likely result in a higher premium.
- If your business involves transporting people for any reason, you should consider commercial auto insurance to take advantage of higher liability limits and special provisions and avoid any unwelcome surprises.
- When considering key person life insurance, be sure to think about staff beyond the business owner. This type of coverage typically focuses on any person without whom the business would cease to exist.
- New businesses typically can secure worker's compensation insurance through any insurance agent or broker who handles business insurance. Premiums may be based on broad factors such as payroll and type of work performed.
- Be wary of health discount cards that offer reduced fees for doctor visits or other medical services. These cards are NOT health insurance plans, and are therefore not regulated by the state insurance department.
- To simplify decision making, consider a business owner's policy (BOP), an insurance "package" that typically includes property, business interruption/continuation and liability insurance. For information about specific providers in your state, contact your state insurance commissioner.