The diversification of the U.S. economy over the past generation has meant that millions of Americans have started theirown businesses. Americans still chase the dream of being their own boss by starting their own business—and the trend may pick up during the economic slump of 2009 because of hiring slowdowns and spikes in corporate layoffs.Small businesses are the biggest driver of job growth, generating 60 to 80 percent of net new jobs annually over the last decade, according to the U.S. Department of Commerce. Small firms employ half of U.S. workers.And the sole proprietor is alive and well: In 2005, there were six million firms with employees but a whopping 20.4 million firms who had no employees other than the owner, according to the Small Business Administration.
Of all small businesses, 52 percent are home-based. That means millions of Americans are earning their business income where they live. But business owner beware: Don’t expect homeowners insurance to cover business risks.
Business insurance offers protection from liability and property risks. Often these coverages are combined into a package policy called a BOP or business owner’s policy. Millions of small and mid-sized business owners purchase or renew their BOP every year.
Typically, a BOP includes the following coverages:
Property insurance for buildings and contents of the business. Home-based business might not need coverage for their property, since it’s already insured against risks of fire, lightning and windstorm. But if there are additional risks to the structure because of the presence of business operations, those won’t necessarily be covered by homeowners insurance. Jon Jepsen at SentryWest Insurance (a Trusted Choice® insurance professional) can help determine if a special endorsement or a separate policy are most appropriate.
Home-based businesses might not have adequate coverage through homeowners insurance because homeowners policies often have “sublimits” restricting coverage for business property. For instance, the homeowners policy may cover business property, but typically only up to $2,500 while it is “on premises” and up to $500 while the property is “off premises.”
One example of inadequate coverage was a home-based retail cosmetics/personal care business that kept $20,000 of inventory in a garage that caught fire. The inventory was covered only up to the sublimits of the homeowners policy. Another instance: Coverage would be limited to the “off premises” limit of $500 if a laptop computer valued at $1,500 that is stolen while the business owner has it away from home.
Property insurance for buildings and contents of the business. Home-based businesses might not need coverage for their property, since it’s already insured against risks of fire, lightning and windstorm.
If there are additional structures on a residential property where the homeowner operates a business, those won’t necessarily be covered by homeowners insurance. For example, a detached garage that serves as a small-engine repair shop would not be covered by homeowners insurance; that business owner would need a policy endorsement to gain coverage.
Business interruption insurance. This protects against loss of income resulting from a fire or other covered event that disrupts the business. This coverage can also include the extra costs a business shoulders while it works from a temporary location. A fire in a home can be double trouble for a home-based business.
Liability insurance. This protects the small business for legal responsibility for the damage it causes to other people or entities. Liability insurance is usually priced according to the risk of the industry in which the business operates. A business that manufactures toys, for example, faces different risks than a consulting firm. Liability insurance shields a business and its employees if they cause bodily injury or property damage.
Not included in a BOP are professional liability coverage, automobile insurance, workers compensation, medical insurance and disability insurance. All can be covered with separate policies.
Check with Jon Jepsen at SentryWest (a Trusted Choice® insurance professional) about what type of insurance protection a small business—especially a home-based business—warrants.
Jon Jepsen, CIC