Modern technology is amazing. It offers us so many ways to keep in touch, book travel, and move goods from one point without lifting a finger. It also allows us to make money in new ways that we hadn’t thought of before. We can sell items on eBay, Etsy or Amazon. The internet allows for all manners of small businesses to spring up in the most unexpected places. We can even process financial transactions with our smartphones, allowing us to sell products pretty much wherever we go.
In addition to high-tech businesses, there are plenty of low-tech opportunities as well. We can use our personal vehicles as taxis, with services such as Lyft or Uber. We can transport packages as couriers. We can deliver pizzas or deliver newspapers. Not to mention that cutting hair and doing handy work for neighbors, which have both been a time-honored ways of making a little extra cash.
If you choose to make extra money by way of any small business or service, there is a good possibility that you may need additional insurance to cover yourself properly should anything unfortunate happen. The facts are that your homeowners’ insurance and standard auto insurance policies may not cover your business activities. If you do have any “business pursuits” coverage included, it’s likely going to be limited, and probably wouldn’t be enough to cover even a fraction of the cost of a loss. Without small business insurance, you would likely be held personally responsible to pay for repairs, medical bills, attorney fees, damages and more. All tolled, that could easily be tens of thousands of dollars or more.
Home-Based Businesses Need Small Business Insurance
In the United States, there are roughly 18 million home-based businesses. Unfortunately, according to Independent Insurance Agents of America Inc., about 60 percent of these home-based businesses are at a huge financial risk by operating without proper insurance. That’s nearly 11 million businesses!
The problem of underinsured or uninsured small businesses is due to a variety of factors. Some people mistakenly believe that they have coverage through their auto insurance, homeowners insurance or renters insurance. Others just don’t understand that regardless of the income they generate, when they are providing a service, they are a small business, and they should be insured. There are also those who just haven’t thought about the potential ramifications of their activities.
As mentioned earlier, most standard personal insurance policies don’t apply to business pursuits. Homeowners and renters policies usually allow for limits of just $2,500 for business-related losses. However, the actual coverage (or lack thereof), depends on your specific policy on whether or not you have any coverage at all. According to a study by The Hartford, theft is one of the most common claims filed by small businesses in the western US, with losses averaging $8,000. Surprisingly, water and freezing damage were the second most popular type of claim here in Arizona. Finally, vehicle-related accidents are the most costly of claims, costing an average of $80,000 per claim. Would you be able to cover these costs out-of-pocket? For most every small business, the answer is absolutely not.
Different Types of Insurance for Small Businesses
There are many types of policies that may be needed to cover your business exposures. The most common types of insurance for small businesses are:
Business Owner’s Policy (BOP)
A BOP offers basic protection for a home based business. These policies cover liability and property damage, including such hazards as fire, theft, loss of income, and more. BOPs also offer some amount of coverage for incidents that occur offsite such as en route to a customer site, making deliveries, etc. A BOP is oftentimes used for auto mechanics, electricians, plumbers, and other similar service or product-based businesses.
Home Office Policy
A Home Office Policy may be appropriate for some smaller businesses with fewer risks. A Home Office Policy combines a small business insurance policy with a homeowners’ insurance policy. It can provide protection for general business liability, theft, lost income, and more. It is a great choice for graphic artists, copywriters, and others that have business computers and other business equipment at home.
Business Pursuits Endorsement
A Business Pursuits Endorsement offers the least amount of protection for a home-based business. It is not a separate policy, but rather an endorsement that is added to your homeowners’ insurance policy. If customers come to your property for any reason, if you have a lot of equipment, or if store valuable inventory, this policy is probably NOT the right choice. However, it could be an excellent small business insurance choice for those that sell Tupperware or run an online business such as an Amazon retailer.
Commercial Auto Insurance Policy
As mentioned earlier, business activities that require the use of your personal vehicle aren’t covered by all auto insurance policies. You may need to talk to your insurance agent to find out what coverage you have (if any) when using your personal vehicles for business pursuits. He or she can recommend commercial auto policy if appropriate, or higher liability coverage on your personal auto policy if the business use is incidental.
You may also need additional types of insurance depending on your business operations, assets, and activities. For example, if you have employees, a workers compensation is required by Arizona law. Talk to your insurance agent to learn what types of small business insurance coverage you should carry.
Get Covered with Small Business Insurance
Having a side job or starting a home-based business can be exciting and profitable. However, as you have just learned, there is more to starting a small business than just identifying a need, putting together a plan, and providing a great service. Contact Imes Insurance Associates today to find out how what types and how much coverage you should have for your small business.