Insurance Needs Change When Home is Your Workplace
For the millions of U.S. small business owners who operate exclusively from home, not understanding the differences between personal and commercial insurance liabilities can be costly. Owners who assume their personal insurance policies for home, auto, life and health will automatically protect their business interests may be in for a few surprises.
Homeowners' or renters' insurance policies are rarely adequate to cover the unique needs of a home-based business. Most individual policies limit coverage for business property losses or damages to $2,500 in the home and $250 away from home. These policies tend to exclude business-related liability claims from persons injured on your property, and provide no protection to sustain the business during downtime associated with a property loss. To close these gaps, owners may want to investigate the purchase of a business owners policy or general liability, business property and business interruption/continuation insurance.
While all auto insurance policies are similarly structured, there are important distinctions between personal and commercial vehicle coverage. Typically, commercial vehicle insurance carries higher liability limits, and includes special provisions for rented and other non-owned vehicles, including employees' cars driven for company business. If you own or lease a vehicle almost exclusively for business use, make sure the business name is listed as the principal insured. You also may consider increasing coverage to protect permanently attached items such as a generator or storage unit.
Since home-based businesses often cease to exist once the proprietor dies, life insurance is most often viewed as a personal, non-business concern. This approach may present significant risks if your home-based business is a partnership. One way to help secure the organization's future is Key Person life insurance. This type of policy names each partner in the business as beneficiary on the other's policy. If a partner dies, the other can use the life insurance payout to buy out the deceased partner's heirs, pay off outstanding loans or other obligations, or continue operations until a replacement employee is hired and trained.
For small, home-based businesses, finding affordable health insurance for you and your employees used to be a challenge. But without health insurance, it is conceivable that one catastrophic event could dissolve the business. Today, small and home-based businesses have a variety of sources for purchasing HMOs, PPOs, EPOs and other popular health insurance plans at group rates. And under the Affordable Care Act (ACA), business owners and the self-employed who purchase coverage through new healthcare marketplaces may qualify for premium tax credits and subsidies. Failure to purchase appropriate health insurance could result in a tax penalty.
Workers' Compensation Insurance: Not Just for Big Business
New business owners may be surprised to learn that most states require you to purchase workers' compensation insuranceeven if you have only one employee. These plans protect the business from claims by employees who experience a work-related injury or illness either on business premises or during business operations. Payouts typically cover medical expenses, rehabilitation costs and lost wages. If you don't have workers' compensation when an incident occurs, your business may be liable and you will lose the limitations on an employee's ability to sue you specified in the workers compensation law.
Home-Based Business Insurance Tips and Considerations
- Since business property coverage is limited and professional liability insurance is not included in standard homeowners' or renters' insurance policies, check with your agent to see if your business qualifies for a homeowners' policy endorsement that modifies the standard policy to meet your specific needs.
- To reduce net out-of-pocket health insurance costs, ask your state insurance commissioner if you can participate in a Health Flexible Savings and Spending Account (FSA).
- Home-based business owners interested in disability insurance may want to negotiate for a shorter payout waiting period after the onset of disability. Note that a shorter waiting period will likely result in a higher premium.
- If your business involves transporting people for any reason, you should consider commercial auto insurance to take advantage of higher liability limits and special provisions and avoid any unwelcome surprises.
- When considering key person life insurance, be sure to think about staff beyond the business owner. This type of coverage typically focuses on any person without whom the business would cease to exist.
- New businesses typically can secure worker's compensation insurance through any insurance agent or broker who handles business insurance. Premiums may be based on broad factors such as payroll and type of work performed.
- Be wary of health discount cards that offer reduced fees for doctor visits or other medical services. These cards are NOT health insurance plans, and are therefore not regulated by the state insurance department.
- To simplify decision making, consider a business owner's policy (BOP), an insurance "package" that typically includes property, business interruption/continuation and liability insurance. For information about specific providers in your state, contact your state insurance commissioner.
Insurance Implications for the New Sharing Economy
Whether you love the idea, hate it or find yourself safely planted in "wait-and-see" mode, trends suggest the new sharing economy is now an established segment of the U.S. small business population. In fact, Forbes1 estimates in 2014, the equivalent revenue flowing directly into sharers' wallets will surpass $3.5 billion, a growth rate of more than 25 percent. And the share-conomics extends beyond popular peer-to-peer ride and room rentals like Uber®, Lyft® and Airbnb®. Entrepreneurs are using technology-enabled intermediaries to lend office space, parking spots, boats, bicycles, cameras and more, to complete strangers.
While joining this "collaborative consumption" revolution may sound like an easy way to make extra money off your home, car or other personal possessions, to keep yourself and your business safe, it's important to fully understand the insurance implications of such transactions.
Transportation Network Companies (TNCs) such as Uber and Lyft connect individual drivers will people who need rides. Passengers and drivers can screen each other, and any payment for services occurs electronically. Note that most standard auto insurance policies specifically exclude rental of your personal vehicle to others and do not provide adequate protection to you if you decide to pick up passengers for a fee. And some states have no-fault medical coverage that follows the vehicle, not the driver – the auto policy covering the car must respond first. In many states, TNCs are no subject to the same licensing and insurance regulations as to taxis or limousines. Before you sign up, make sure the TNC has commercial vehicle insurance that covers bodily injury and property damage to you and others.
Peer-to-peer (P2P) rentals, match travelers with locals interested in renting out a room, apartment or house on a temporary basis. Whether renting a room or an entire house, be sure to review your existing homeowners' or renters' insurance policy. While some policies cover casual renters or boarders, others include exclusions for renting out your property. Larger P2P companies like Airbnb offer what they call "host protection insurance." These plans typically are designed to offer supplemental or secondary coverage after a claim is filed with the sharer's personal insurance provider.
Goods and Services, a smaller segment of the sharing economy, involves the lending of personal items for a fee. The process is simple. Someone needs a high-end item like a camera, bicycle or golf clubs, but only for one-time use. The interested party registers on sites like Zilok or Neighborgoods, enters into a contract and pays a fee to reserve the item of choice. Lender and borrower meet at a safe spot where they complete the transaction. Most sites recommend lenders require a security deposit, as the platform typically states they are not liable for losses or damages. Your homeowners policy probably will not cover you either.
Sharing Economy Tips and Considerations
- For insurance purposes, once you begin earning income from renting out personal property, you're probably considered a home-based business. Make sure you understand all relevant legal and regulatory requirements.
- Before sharing a vehicle or residence, make sure auto and homeowners' insurance policies provide the protection you need.
- When lending goods and services, be sure to set a security deposit that is sufficient to cover losses. Capture photos and other information about your property in a home inventory. Be mindful that for some items, you may not be able to locate an exact replacement.
- Take advantage of the sharing platform's screening, verification and ratings tools. And don't be shy about monitoring a potential borrower's Facebook and Twitter profiles.
In the end, entrepreneurs thinking about a sharing-economy new business venture should contact their state insurance commissioner.