Flexible hours. Casual dress. Relief from daily commutes in rush hour traffic. Weaving work responsibilities into child, elder, and/or pet care. Accepting doorstep deliveries.
Millions of Americans enjoy the independence of working from home. With the freedoms of a home-based office come the responsibilities of setting goals, managing your time, protecting your business resources, and – if you live with others – setting clear boundaries.
And, if you own your own business, that also engages responsibilities to protect business secrets and to insure business property and your own earning potential. Key components of a successful home-based business include protecting against property loss, liability, and disability.
Planning ahead can help ensure that your home-based office works well for you.
Being Your OwnBoss
Running your business out of your home can be a lifestyle shift, whether you own the enterprise or not, particularly if you share your space with family or a roommate. It may not be as easy to leave work at the office when the office is at home. Designated office space helps minimize the impact your business has on your family, reduce your stress, and protect your work. Also, consider a separate business phone line and Internet connection.
In addition to creating an inviting and exclusive workplace, consider the following tips to help with time management and capacity planning:
- Create a project schedule that helps you manage your time.
- Minimize distractions that might reduce your efficiency.
- Log your work on a daily basis.
Setting deadlines and tracking your progress will help you adjust to the unregulated nature of an office at home. While a home-based business inevitably affects your lifestyle, it also affects your insurance coverage.
Your homeowners or renters policy is not designed to protect your home-based business. In general, homeowners policies provide limited coverage (typically around $2,500) for business equipment, which may be inadequate for most high-end personal computers and printers. In addition, liability coverage is unlikely if someone is injured on your property during business hours. Also, income losses due to business interruption do not come under the purview of a homeowners policy.
There are three basic ways you can help ensure adequate coverage for your home-based business: 1) obtain endorsements, or added coverage to your existing homeowners or renters policy; 2) buy an in-home business policy that specializes in business conducted from home; or 3) buy a business owners policy (BOP).
Homeowners Policy Endorsements. Depending on the type of business you run, you may be able to increase your homeowners policy limits for business equipment and general liability for a relatively small, additional premium. For example, if a courier slips on your icy front walk, a liability endorsement may protect you from responsibility for paying damages if legal action were taken against you. The type of business you operate may affect your insurability for liability protection using an endorsement.
While most homeowners policies protect against severe weather, not all types of damage are necessarily covered. Damage from wind, lightning, hail, and snow are generally included in the average homeowners policy, but bear in mind, however, that most homeowners policies exclude flood coverage. If you are located in a flood zone, you may need to get a separate flood insurance policy.
In-Home Business Policies. For more comprehensive coverage, consider an in-home business policy. You can select higher limits for business property, as well as business interruption coverage that will provide for lost income and ongoing expenses if you are unable to operate your business because of damage to your home. This is in addition to several other business-related coverage features that are typically not available in a homeowners policy. For example, coverage may protect against the loss of important documents and records, accounts receivable, and off-site business property or equipment. Furthermore, the liability concerns for a home-based business owner are broader than the scope of a typical homeowners policy. An in-home business policy generally offers liability coverage for accidents that occur on the premises, as well as for legal action taken against you as a result of your business services or products.
Business Owners Policies (BOPs). Lastly, for business owners with more involved operations, including manufacturing and other operations outside the workplace, a BOP might be a better fit. BOPs generally include: coverage for a building and its contents; business interruption coverage in the event a catastrophe, such as a fire, forces operations to cease; and liability protection.
Typically, a BOP covers business property that is exposed to risks such as fire, smoke, hail, wind, theft, vandalism, and some forms of water damage (for instance, from leaking roofs or broken pipes). Insurable property includes, but is not limited to, buildings, office furniture and equipment, machinery, inventory, and signs.
While you can increase your homeowners coverage to meet some of your business needs, insurance solely for your business does not replace coverage for your home. Assess all of your needs to determine the best course of action.
Protect the MVP
You just may be your business’s most valuable player (MVP), and proper measures should be taken in the event you suffer a disability. To qualify for Social Security disability benefits, you must be severely disabled and, even then, you will have to wait at least six months for payments to begin. Social Security disability was not intended to be an individual’s sole source of disability income, thus benefits are often less than what you might need to cover your regular living expenses. Disability income insurance offers protection against an accident or health crisis that limits your ability to earn income. Depending on your income, the maximum coverage you can buy may replace 45% to 75% of your pre-disability earnings. The policy’s cost generally depends on such factors as the risk level of your occupation, your age, health, and the scope of coverage. Consider the following policy features:
- Definition of Disability. Carefully review the definition of disability in your policy. Some policies cover you if you are unable to work in the occupation in which you were employed or for which you were trained, or if you can no longer earn as much as you once did in that field. In contrast, other policies cover you only if you are unable to work in any occupation. This distinction can make a big difference if you become disabled.
- Residual Benefits or Partial Disability Coverage. Under certain specified circumstances, if you become disabled and are only able to earn a portion of your previous income, residual benefits or partial disability coverage pays a portion of your benefits.
- Guaranteed Renewable. With this feature, the insurer cannot refuse to renew your policy or change any terms, except for premium cost, as long as you continue to pay your premiums on time.
- Guaranteed Insurability. This provision allows you to increase your monthly benefit, even if you experience health changes that would otherwise prevent you from obtaining additional disability coverage.
- Cost of Living Adjustment (COLA). This feature helps protect your benefits against the effects of inflation during a long-term disability.
Also, consider a business overhead expense policy that can help cover lost profits and continuing fixed costs, such as salaries and ongoing business expenses, in the event you suffer a disability. In general, benefits are: paid monthly after a predetermined waiting period; limited to a maximum amount; and restricted to a specified length of time (often from one to two years). A thorough disability plan that includes both disability income and business overhead expense insurance can help protect your livelihood and ensure your business stays up and running.
Depending on the type of home-based business you run, and the type of related driving you do, a business auto policy may be necessary to help ensure you have adequate insurance coverage. Like with a personal auto policy, it is important to secure sufficient coverage for liability, collision, and comprehensive medical payment (also called personal injury protection), as well as protection against uninsured motorists. A thorough review of the ways in which your vehicle is used for business purposes can help determine the appropriate type and level of coverage.
Down the Home Stretch
In the rush of your day-to-day business activities, insurance may seem like a secondary consideration. It’s easy to put off thinking about what might happen tomorrow, when there is so much to do today. But failing to properly plan, or assuming that your current homeowners coverage will protect you, could be costly. For your sake, protect your business against property loss and liability, and prepare for the possibility of a disability. As your business grows and changes, regularly review your coverage to keep pace and stay current. Your livelihood may depend on it.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.