Small businesses include everything from a freelancer that earns a little extra money on the side, to a manufacturing company making widgets in the industrial park on the edge of town. One thing they all have in common, however, is that they have liability exposures, that should be covered by one form of insurance or another.
Who Needs Business Insurance?
Many people mistakenly believe their small, home-based business is covered by homeowners or renters insurance, along with their auto insurance. The truth is, however, most homeowners insurance and renters insurance policies have a “business pursuits” exclusion, which limits covered losses to a maximum of just $2,500. With regards to auto insurance, either you’re covered for things that happen while you’re working, delivering newspapers and pizzas – or you’re not. It all depends on your individual policy and the circumstances of the incident.
If you’re a plumber, electrician, landscaper, or do cement work; you are a small business and need coverage in addition to any personal insurance you might already carry.
Different Types of Insurance for Business
Just as there are many types of small business, there are many types of insurance to provide adequate coverage.
Business Owner’s Policy (BOP): A BOP offers financial protection for both liability and property damage. The hazards that a BOP covers could include theft, damage to the structure in which the business operates, loss of income, general business liability and more. A BOP also provides some coverage for hazards that occur off-premises as well, including liability coverage for products you sell or services you perform. A BOP may be the right choice for plumbers, electricians, contractors, mom-and-pop shops and other similar businesses.
Home Office Policy: Offering less protection than a BOP, this type of insurance combines your homeowners policy with a business policy, eliminating duplicate coverage that can sometimes occur with other policy choices. Home Office Policies cover general business liability, lost income and ongoing expenses for up to one year if damage to the home results in loss of business and income. This is a great choice for home-based businesses with very few visitors, such as graphic design artists, freelance writers and those who visit other people’s homes or businesses to perform work.
Business Pursuits Endorsement: A Business Pursuits Endorsement isn’t actually a policy, but rather an add-on to your homeowners’ insurance policy. While it provides the least protection for a business, this may be the right choice for someone that holds Tupperware parties or does some contract work from home. It is not recommended for home-based businesses that welcome customers onsite or have costly equipment.
Which Policy is Right for You?
Each policy outlined above offers different coverage, and it might be the case that none of these will provide all of the coverage your small business will need. Depending on your business, you may find that you need professional liability coverage (sometimes referred to as errors & omissions or E&O), commercial auto insurance, worker’s compensation or health and disability insurance.
How Much Small Business Insurance Do You Need?
If you’re just earning a few dollars on the side, you might think that the $2,500 is enough. But the fact is, how much money you earn has little to do with the exposure your might have and the limits you may need. If a customer comes to your property and injures him or herself in a fall, $2,500 would be eaten up just in legal fees. A break in at the home of a graphic artist could easily result in $20,000 of losses of computer equipment and software. Repair work you complete could fail and cause bigger damages. If you were to permanently disable someone in a car accident while on your way to a client meeting, the sky is the limit as to what the damages may be.
So how much coverage do you need? Here are a few questions that could help determine your small business insurance needs:
- How much would it cost to replace your computers or equipment?
- Do you store a high quantity of product inventory at your home?
- Do customers visit your home for any amount of time?
- Do you rely on your vehicle to make money?
- If your home was severely damaged, could you still make money?
Your answers to these questions and more could have an influence on the types of small business insurance policies you might need.
Is Your Business Properly Covered?
Your home-based business or side job could be very helpful in making a living or making ends meet. It could also spell financial disaster should you experience a loss without the right insurance coverage. If you have a small business of any size, give us a call to find out if you should carry small business insurance and what kinds of coverage you might need.