Opening a home-based business has an impact on every aspect of your life. You will have to be extremely careful with your finances, because you can no longer count on the monthly paycheck. You have to learn how to do your taxes as a business owner, and you have to understand how your home-based business will impact your existing insurances.
One aspect, which we have already covered in previous articles, is getting special insurance for your home business. The other, which we will deal with in this article, is understanding that your current home, contents, car and public liability insurance will be affected by the fact that you operate a business out of your home.
Before we go into detail with these aspects, this is one key take-away you should retain from this article: always inform your insurers of the existence of your home business as soon as you have it registered and ready to operate. Failure to do so will not only result in their refusal to cover your claims. Your existing insurances may be not eligible for renewal or may even be voided on the spot when the insurance company finds out that you are running a home-based business.
That being said, here are the most important ways in which home-based businesses impact your insurances.
1. Home Insurance
Insurance companies include running a home-based business on the list of liabilities which give them reason to increase your monthly premium. Why is that so? In the reasoning of insurance companies, running a business increases risks, be it from the fact that you operate equipment which may malfunction and cause a fire, or from the fact that giving access to clients and suppliers to your home increases the risk of burglary.
When you inform your home insurer about your business, they will ask you a lot of questions about what type of activities you run and what area of the house is effectively used for running your business. Be honest and accurate in all your answers. Should you need to prepare a claim for an uninsured situation, it will backfire, leaving you without compensation and insurance coverage.
2. Contents Insurance
When you insure the contents of your home against burglary, fire and other calamities included in the policy, these contents are understood as your personal assets. There is also coverage for business equipment included in this policy, but it is usually up to $2,500. Most definitely, your office or professional equipment for running your business activities exceeds this amount.
You need to discuss with your insurer and obtain separate coverage for your business assets. Also, consider following the advice provided in the next item below.
3. Insurance for Business Interruption Risk
With all your insurances in place, when disaster strikes you will receive a bulk sum of money for your losses. However, it will be some time before you can replace your equipment, restart your business activities and obtain income from your business. This is why it is a good idea to consider insurance for business interruption – to give you a safety net before you recoup and go back into business.
4. Public Liability Insurance
Most people take out public liability insurance just in case someone slips and falls down the stairs or on ice while on your property. Once you open a home-based business, this kind of policy will definitely need an upgrade – at least in terms of monthly premium. The reason behind this is, obviously, that with the increased traffic on your property (deliveries, clients), there is an increased risk of accidents taking place.
Once again, you do not want to pretend the insurance company won’t find out you are running a business. With the first claim of this kind that you file, the entire situation will be out in the open and you will be left out in the cold.
5. Car Insurance
You may think that your car has nothing to do with your home business, so why should you inform the insurer or extend your policy? Here is a simple scenario: you go out for lunch or go to the post office to mail personal stuff. You cause an accident, no matter how minor. The insurance company finds out about your home business during the investigation of the case and claims you were using your car for business – which is not covered by your current policy. You are now liable to pay the damages out of your own pocket. This scenario is so common, it could happen any day.
These are the key aspects you need to consider when you forecast the expenses for your home-based business. All your existing insurances will definitely need to be upgraded, apart from the business insurances which you need to procure. However, a part of these extra expenses can be deducted on your tax return – allowing you to keep a larger proportion of your earnings.