If you are a telecommuter, you might be wondering, “What Insurance do I Need to Work from Home?”
If you have a home-based business, you may need a Business Owner’s Policy (BOP). A consultant may need an Errors and Omissions policy (E&O). A General Liability (GL) or Umbrella (UMB) policy can help you to avoid being wiped out in a lawsuit.
There are many factors that will determine whether you need some or all of these insurance policies. Let’s talk about the various policies, and when you might need each one.
Types of Insurance Policies
There are several different types of insurance policies to consider if you work from home.
A commercial general liability policy covers your business for claims arising from bodily injury, damage to property, and personal injury due to your business’s operations or products.
These policies can also protect you from legal costs (settlement or judgments). Often, the insurance company will provide a lawyer to defend you in the event that a claim is made against you.
Here are some examples of situations that a commercial general liability policy would cover:
- If you run a consulting practice out of your home, your general liability policy would cover bodily injury to another person, such as someone who slips and falls when visiting your home office.
- If your company produces a faulty car accessory that damages people’s cars, then your general liability policy would cover property damage to those cars (product liability)
- If you injure yourself at home while working on your business, your general liability policy may cover your personal injury costs.
- If you are sued by a customer for breach of contract, your general liability policy would cover the legal costs of the case, and provide a lawyer to defend you.
Remember that it is in the insurance company’s best interest to minimize the cost of a lawsuit. If they think a plaintiff will win a $2 million case, they might offer $1 million to settle the case instead. This saves them from paying out another $1 million, plus the extra cost for an attorney’s time in court.
A commercial general liability policy might cost $500 to $3000 a year, depending on the type of business you run.
Business Owner’s Policy
A business owner’s policy includes general liability coverage (discussed above). It also covers property insurance for buildings and contents. In addition, this policy offers business interruption insurance.
This means that if you lose out on business income due to damages to your home, equipment, or inventory, the insurance company will pay part or all of what you what you would have earned.
You work from home in your own business, creating arts and crafts to sell online through platforms such as Etsy, eBay, and Amazon.
One day, your art workshop in the basement is damaged by a fire.
Your business owner’s policy will cover damage to your business assets.
In addition, your business interruption coverage will kick in, since your business cannot continue to operate until your workshop is rebuilt.
Your business owner’s policy will cover loss of income for your business until you can rebuild.
Your policy may also cover the extra costs of operating from a temporary workshop elsewhere.
A business owner’s policy can cost $500 to $3500 per year. This will, of course, depend on the cost to replace your equipment or inventory, the amount of business income you have, and the type of business you operate.
Don’t forget to include any office equipment you have purchased for your business. This includes an ergonomic keyboard or mouse, a headset, or standing desk.
For more information, check out my article on the best tools for telecommuting.
Errors & Omissions (Professional Liability)
An errors and omissions policy covers your business in the event that a person claims that your actions in a professional capacity were negligent.
Some examples of professionals that need to consider professional liability insurance include:
- doctors – if someone suffers harm or dies in your care, you can be sued by the patient’s estate or family for damages, pain and suffering, wrongful death, etc.
- lawyers- if you fail to uncover something in your research for a case, you can be sued for negligence
- engineers – if you design a building or structure that collapses and causes damage or injury to others, you can be sued (in addition to the builder being sued)
- consultants – if your advice caused harm to a client’s business, you can be sued for damages
- title search professional – if the buyer of a property suffers loss because you failed to properly research the title and ownership history, you can be sued for damages
Errors and omissions policies tend to be expensive. For instance, a policy for engineers can cost from $1500 to $3500 per year or more.
A personal umbrella policy can offer extra protection in the event that you are sued for an amount that is more than the limits for another policy (homeowners, renters, condo, auto) will cover.
This policy will cost $150 to $300 per year for the first million dollars of coverage, with additional coverage available for higher premiums.
Most insurers will require that you have a certain minimum amount of liability coverage on your homeowners or auto policies before selling you an umbrella policy.
A commercial umbrella policy works in a similar way, only for a business. If your business is sued for an amount that is more than the limits for another business policy.
This policy will cost $500 to $2000 or more per year.
Homeowner’s Insurance Endorsements
If you already have a homeowner’s insurance policy, you may be able to add certain business insurance coverage as an endorsement, in exchange for additional premium.
Rates will depend on things like:
- what type of business you conduct at home
- whether you have employees or visitors at your home office
- whether you work with any hazardous or flammable materials.
Perhaps your e-commerce business deals in rare and expensive items, such as coins, baseball cards, or other collectibles.
In that case, make sure that you talk to your insurance company to get adequate coverage from theft!
Do Online Businesses Need Insurance?
What if your business is conducted entirely online, with no physical location at all? In that case, you still need insurance!
Here are some examples of cases where you will need insurance for your online business:
- contractors visit your home (for example, to build or remodel a home office, install fixtures, etc.)
- clients ask for or require it (for example, if you are a freelance consultant, clients may ask for proof of Errors & Omissions insurance)
- Federal, State, or local law requires it
- you have lots of expensive equipment (for example, computers, collectibles or inventory for an e-commerce business)
- for your own peace of mind
- you have employees (Theft, Fidelity, etc. – what if an employee sells or uses customer information in a dishonest way?)
You could also be held liable if an employee, despite his good intentions, causes damage to a client or his business. This is why it is essential to train your workers properly.
For more information, check out my article on how to train remote employees.
Remember that people can still cause damage to your business via the internet – be proactive and take the necessary precautions.
Things to Remember
There are a few things to remember before you go out and buy one or more insurance policies.
Ensure Adequate Coverage
This includes the usual coverage: health, dental, vision, life, and disability insurance. Either your employer covers you, or you cover yourself!
Review your policies and make sure that the limits of liability are adequate to ensure that you are covered.
Let’s say you work as a consultant out of your home office.
You know that in your field, lawsuits for errors and omissions often seek damages of $2 million or more.
In that case, a professional liability policy with a limit of $1 million would be inadequate.
You would need to ask your insurance company about increased limits, which would mean a higher monthly premium for you to pay.
Deduct Insurance Premiums on Taxes
Any insurance coverage for your work as a contractor (1099) or related to a company you own is a cost of doing business. This means that you might be able to claim any premiums you pay as a deduction on federal or state taxes.
Update Your Insurer on Any Changes
If your business is doing well and you purchase some expensive equipment, be sure to let your insurance company know about it. If you install new hardware, but don’t tell them about it, you might not be covered for a couple of different reasons.
First of all, the increased value of your equipment or inventory may exceed the limits that your insurance policy will cover in the event of fire or other perils. In that case, you would be left on the hook for any damage beyond the limits of the policy.
In addition, some special items may be excluded under your insurance policy. I your insurer knows what you have, they can offer the right policy to protect your assets.
Ask About Discounts
If you belong to an affinity group, you might receive a discount on all of the policies you have with an insurance company.
Your insurer may also offer you a discount for bundling policies. For instance, a company may offer a discount if you purchase both home and auto insurance.
Finally, you might receive a discount if you have some preventative measures in place:
- sprinkler systems to mitigate damage from fire
- proximity to police or fire stations
- theft deterrence systems, like burglar alarms and security cameras
- cybersecurity measures to prevent theft and loss of data
Insurance is an important aspect of any business that you operate from home. There is a price to pay in the form of premium, but it may be worth the peace of mind.
Buying insurance allows you to trade away the possibility of a large loss in exchange for the certainty of a monthly or annual premium payment.
I hope this answers some of your questions about the types of insurance you might need to work from home. Please leave any questions in the comments below.