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Does your home-based business need commercial insurance?
As a home-based business owner, building up your business to newer heights is an exciting idea. While growth is crucial to any business, protecting it can be equally important. If your business sells goods or services and operates out of your home, whether it's full time or part time, out of your living room, basement or even your garage, it is always a good idea to ensure you have the right insurance in place to protect it.
Will your personal home insurance policy cover your home, personal contents, and your business too? For the most part, it may not. Let's look at how a business insurance policy can help protect your business so you can keep doing what you do best.
What is considered a home-based business?
The sky's the limit when it comes to the variety of home-based businesses. As long as the services or goods your business provides are managed out of your home, you've got yourself a home-based business. You could be a photographer, baker, massage therapist, bookkeeper or even a pet groomer. Your home could be rented or owned, and your workspace could be any part it. Yes, any part – even the hidden corner of your basement.
Since remote work has become the norm, it’s common to get confused between having a home office and a home-based business. If you work for a company with a main office elsewhere and occasionally work from home with company owned equipment, products or clients, this would be considered working remotely from your home office. On the other hand, as a home-based business owner, you own the company you work for. Which means you are responsible for all aspects of it, including the workplace, equipment, products and clients. If this applies to you, a commercial insurance policy may be a good fit.
Does my home insurance cover my business's tools, equipment, and inventory?
While your home insurance policy may cover personal items such as your clothes or furniture, it may not cover your business-related property such as your business computer, inventory or sellable products in the event of a covered loss. The following example helps illustrate how a commercial insurance policy might help protect your business from a covered loss.
John, a photographer, runs his business from his home. He has a studio set up in his basement where he stores all his lighting, backdrops and multiple cameras. He also has a small desk set up in the corner with his laptop he uses to edit photos. Due to a burst pipe on the main floor, water leaked through the ceiling and damaged all his equipment. A Commercial Property Insurance policy may cover the repair or replacement of John's damaged business-related items.
Does my home insurance provide liability coverage for my business?
A home insurance policy may not be sufficient to protect your business if it faces a lawsuit from a third party. As you build your business, unfortunately, unexpected events can occur such as an injury to a customer, damage to a customer's property or damage due to a defective product. Commercial General Liability (CGL) Insurance, can cover your business from claims made by third parties (even if they are groundless) to help you feel confident that what you've worked so hard to build is protected.
For example, June owns a home-based bakery and one of her customers falls ill after consuming one of her cookies and files a lawsuit against her bakery. CGL insurance could protect June's business by covering the following:
- Legal Defense Costs
- Medical Expenses to the customer
- Settlement amount
Without CGL insurance June could be responsible to pay for these costs out of pocket resulting in a financial hardship to her bakery.
How can I ensure I'm protected in case of a business interruption?
If your business needs to temporarily shut down or relocate due to an unexpected, covered event, a home insurance policy might not be of much help in supporting your business during this difficult time. Adding Business Interruption coverage to your Commercial Property policy could help your business recover from lost income and cover expenses while temporarily shut down, keeping your business financially steady even when the unexpected occurs.
Using June, the home-based baker as an example, if she were to have a fire in her kitchen that prevented her from baking cookies while her kitchen was being repaired, a Business Interruption policy could help June by compensating for lost revenue, help pay for ongoing expenses, and cover temporary relocation to a new facility to bake her cookies; allowing her to recover faster.
Should I notify my insurer if I have a home-based business?
Yes, you definitely should. Most home insurance policies don't cover business related activities, equipment, inventory or liability risks associated with a home-based business, such as customers entering the home. In some cases, failing to inform your home insurer of your home-based business could lead to a denial of your claim or even cancellation of your home insurance policy.
Starting a home-based business can give you the freedom to finally build towards your dream. Having the right insurance coverage in place can help protect your business from the unexpected, allowing you to focus on growing that dream.
Shopping for insurance can feel overwhelming, but understanding the essentials and consulting with a licensed insurance advisor can help you make an informed decision on how to best protect your home-based business from unexpected events. Explore how you can get flexible coverage options with TD Insurance for Business so that you only pay for the coverage you need.