When starting a home-based business, the initial planning for the owner should include the potential risks associated with it. As with any other entity, business insurance is a protection against unforeseen events.
As an example; the majority of home-based businesses use a computer and while you may regard it as being for personal use, if you are using it primarily for your business then there would not be coverage under your usual homeowner’s policy. Whether an insurer would debate its usage if there was a disaster that destroyed your house is debatable. However, to be on the safe side and for a small extra cost, include it with an added business clause on your household policy.
It has been shown in various reports that most home-based business owners do not arrange insurance coverage. This places them at risk as the majority of homeowner policies do not include coverage of liabilities and risks associated with their business. Additional information shows that about 10% of households in America operate a form of home-based business. A disturbing factor is that almost 60% of those home entrepreneurs do not possess adequate insurance coverage.
A perception of many home business owners is that they are too small to justify special business insurance. In general, businesses such as those related to crafts or musical lessons have sufficient coverage from a home-owners policy, but with any item that is related to the business included as an additional clause.
Regarding a home-based professional service, serious consideration should be given by the owner to having a policy that extends coverage for liability and interruptions of the business. Should there be any employees or visitors to the business location, then specific business insurance will be needed and various statutory laws and workers compensation adhered to.
Home-based business owners are placing themselves at risk by not having business insurance. It has been recognized through surveys that owners of home-based businesses with a lower income are likely to ignore business insurance. However, it was also shown that those with relatively high incomes did not have adequate coverage for their business operations. When it is taken into account that a comprehensive policy for a home-based business is not a costly investment, it is unwise for owners to accept this potentially high financial risk factor.
Home-based business insurance can provide security against financial loss related to a variety of causes including; damage to equipment, theft, employer liability and personal injury on the premises, accidents with vehicles and more. To determine your existing business coverage check the following:
- The coverage given by your homeowners policy and for what contingencies you do not have insurance protection
- What are the different business insurance options available to you
- Do you require income protection for a full-time home-business occupation
- Review personal coverage regarding life and health insurance, disability security and workers compensation.
Some home-based businesses accept the concept that as their business does not produce a high income, the business is safe! This is a misconception, as every person and every type of business can be sued. Once a judgment in respect of money owed is given against an owner then it can be acted upon. Bank accounts and assets may be seized to discharge the outstanding debt.
Another aspect regarding responsibility to family and business partners is that on the death or disability of the principle, most home-based or small businesses do not continue. It is very rare for the surviving family and business partners to continue operating the business in this situation. Contributing to this is a lack of available cash from the business to pay the estate of a deceased owner for its business interest.
It is also believed by some business owners that they are protected by a corporate format and therefore do not require appropriate insurance. This is a fallacy as the corporate format is designed solely to give protection to individual investors, owners and officers from personal liability. However, under state laws in America this perceived protection can in various circumstances be removed.
Should this occur, then the owner of the business could be held liable on a personal basis. This may entail settling a judgment by forfeiting personal assets, for example; your house, car or even life savings. Although each state has its own variation, a general consideration is that, smaller the business, more likely it is to happen to you.
The simple answer for any home-based business owner regarding insurance is that significant phrase; it is better to have it and not need it; than need it and not have it!
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