Mackay Insurance Blog
It is exciting to get a new home-based business up and running! For many Canadians today, being able to work from home profitably is a huge “bucket list” goal.
The number of home-based businesses throughout Canada grows each year, which is great news for Canada’s economy.
However, a surprising number of home-based business owners do not realize that their home insurance coverage may not provide coverage for claims associated with their home business operations.
This can put both the business owner and the business at risk of exposure to liability and legal issues. In this article, we talk about why we recommend home-based business insurance.
What is Home-Based Business Insurance?
As the name implies, home-based business insurance is an insurance policy that is specifically tailored to the unique needs and potential liability issues of a business that is operated out of your residence.
What Are the Types of Home-Based Business Insurance?
There are two basic types of home-based business insurance. It is important to talk to your broker about your business and determine which of these solutions is right for you.
Extension of an existing homeowners policy
The first type of home-based business insurance can be provided through an extension of your existing home insurance policy.
This type of insurance may fit your needs if your business has just one or two employees without a lot of foot traffic through the home (customers, vendors, employees).
Standard business insurance policy
If you have a larger or more high-value business, or you are storing business inventory at your home, you may need a standard business insurance policy instead.
What Does a Home-Based Business Insurance Policy Cover?
Both types of home-based business insurance policies offer certain standard features that all business owners should have in place.
For general purposes, the majority of home-based businesses have several types of business-related property kept on the premises to help run the business.
Examples include home office equipment (desks, file cabinets, printers, scanners, computers), business inventory (raw materials, finished products, packaging, marketing materials) and cash reserves.
Your property coverage typically provides coverage for business property losses in your home and any items you may transport for business purposes that are lost, stolen, vandalized or destroyed while you travel.
Your cash on hand needs to be looked at separately. You will need the correct amount of insurance, and insurance against the correct perils. As an example there is different coverage needed to protect you if someone breaks in and steals your cash (theft), if someone holds you up at gunpoint on the way to the bank (burglary), and if an employee steals from you.
Business liability coverage will protect you if, for example, a customer is injured while at your home. It can also protect you from legal issues that arise from damage that can be traced back to your company’s services or products.
Business interruption insurance is a valuable resource for small and home-based businesses in particular, since often even a short interruption may greatly impact the viability and health of the business.
Business interruption insurance can compensate you for being unable to run your business due to your place of business (in your case, your home) being unusable due to a fire or other insured peril. It may also cover the costs for you to move your business operations to another location until you can move back into your home.
Extra Business Insurance Coverage You May Need
The specific type and level of home-based business insurance coverage you need can vary depending on the type of business you operate as well as on the scope of the business and the number of employees you have.
For example, let’s say you run a service-based business. Your main “product” is your expertise. If you give professional advice, you may need a professional liability (errors and omissions) policy.
This policy covers and protects you if a client sues you for professional negligence or malpractice.
Businesses that work with children or at-risk adults face a higher liability exposure. In addition to slips, falls, accidents and other bodily injury issues, you need insurance that will pay for your defence costs if abuse is alleged.
You may need special insurance if your business property includes antiques, rare items, high-value items or unique items.
It is important to talk through your home-based business with your broker and put together the right coverage to meet your needs.
How to Determine What Business Coverage You Need
A technical term for figuring out what to insure and for how much is “risk management.”
Risk management means identifying possible risks in advance and then working backward to put a plan in place to both prevent them from occurring and protect you if they do occur.
You can use risk management to figure out how much insurance coverage your home-based business needs by following these four steps:
Ask yourself what could go wrong. Write down everything you can think of.
Brainstorm ideas for how to prevent each risk from ever happening.
Assign a dollar value (or range) to each risk—how will it impact your bottom line?
Brainstorm ideas for how your business will recover if each risk happens.
Doing this pre-work can come in handy when you meet with your insurance broker. You will already have a good idea of the potential impact of each business risk, and your broker can help tailor your insurance policies to meet your needs.
Get in Touch
Here at Mackay Insurance, we have a combined 165+ years of insurance industry expertise! Contact us online or give us a call at 888-853-5552 to find out how we can help you protect your home-based business!