Is Your Home Business at Risk?
Most home business owners think their home and contents insurance covers their business risks – and this is often not the case.
Few realise that their home insurance may be limited in what it will cover with regard to their business risks.
A lack of home business insurance can be an expensive mistake. A real danger exists especially for those people who rely on the income from a home business. Without the right insurance everything is at risk, your business, your house and ultimately your lifestyle.
“Far too often home based businesses fail because they simply didn't realise they had inadequate cover for their home based business.” Figures from the Australian Bureau of Statistics indicate that one in six home businesses are either under-insured or not insured at all.
“According to the Insurance Council of Australia :
Evidence indicates that a greater incidence of noninsurance and under-insurance exists among sole traders. This may be due to the mistaken belief that because they operate from home, their domestic insurance covers their business activities.
“In fairness to home business owners, this is an issue that has only just begun to hit the headlines.
“Until now there has been little written or spoken about the specific insurance challenges faced by home business owners.” The good news is that the insurance industry has begun listening to the concerns of home business owners.
How to protect your home business
- Check with your home insurer if your business risks are covered under your home insurance policy. Consider all your business risks including: Business contents, Business liability, Business machinery breakdown, Business money and Business interruption
- Do a thorough assessment of your home business looking at the likelihood and impact of every risk – both domestic and business.
- When selecting your insurance provider consider the following:
- Competitive premiums
- Dealing direct, so you are not paying for commissions or fees
- Pay by the month options at no additional cost which means better cash flow for your business
- Help with calculating the value of your business assets and how much cover you need
- An insurance provider that can cover both your home and your business in one policy
Business items generally not covered in a home insurance policy include:
- Stock
- Work in progress
- Business liability risks
- Business interruption
- Business money
Unless you have a specific business insurance policy you will not be covered for the following:
- The loss of profits while your business is down,
- Loss of business cash, or
- Breakdown of vital equipment.
Some insurance scenarios you might not have thought about
Business contents or business property insurance
Covers the physical loss of or damage to your business property from certain events such as fire. This would cover the replacement of your business equipment, work in progress or stock held at your home business, which would not, in most cases, be covered by your home insurance.
Scenario -
A fire damages your home business store room just as a big order comes in and the stock is destroyed. Business insurance would cover the replacement cost of this stock.
Business machinery breakdown insurance
Covers the repair or replacement of business machinery such as freezers, computer or other electronic equipment.
Scenario
Your home business computer breaks down, leaving you unable to access customer details. Your home policy is unlikely to cover the repair of your computer as it is used for business.
Legal Liability insurance
Covers your legal liability for an injury to another person or damage to their property in relation to your business activities (eg customers, employees and the general public). It also includes product liability, which compensates consumers for injury suffered from the sale or supply of your business's products or services.
Scenario
If a friend or relative is visiting and falls and breaks their leg due to your negligence, your home insurance policy will cover it; if a client is visiting and falls and breaks her leg in the same circumstances, it won’t.
Business Interruption insurance
Covers lost revenue or increased costs that you may face if you're forced to suspend your business activities because of fire, flood or other disasters. The increased costs can include your time spent organising replacement stock and potential damage to your reputation.
Scenario
The damage to stock as a result of a water leak in your home business store room means you are unable to fulfil customer orders. Business Interruption insurance provides you with the funds for alternative premises and covers the lost income of not meeting those orders.
Professional Indemnity insurance
Covers professionals providing advice or consultancyto clients if they are sued for breaching their professional duty of care. This is not just a consideration for traditional professionals. Many types of professionals who work at home require such insurance including hairdressers, massage therapists, vets and marketing or management consultants. Indeed, any person who is regarded by their clients as an expert should have professional indemnity insurance.
Scenario
An architect who works at home prepared structural drawings for a building and it was subsequently alleged that the drawings contained errors. Costs of the alteration and the resulting delays in construction were claimed.
It is impossible to reduce all risks and whilst you can transfer some risks through insurance, it is preferable to reduce risks to an acceptable level.