Standard homeowner policies are not adequate to cover all risks
by John Bleasby
You started out small with just a home office in the spare room. As the business grew, you hired some staff to work in the expanded home office you built in the basement or in the renovated garage. Now clients come for meetings and you’re storing tools and machinery in a building out back.
A growing business based at home is a great thing, but may require a thorough review of your insurance needs. There are risks and considerations that a standard home insurance will not cover. You are not alone. A study in the U.S. showed that almost 60 per cent of home-based business have inadequate insurance coverage, a percentage likely similar in Canada.
Liability coverage should start on day one
Even a small home-based business with one or two people won’t fit within the context of a standard home policy, particularly in terms of liability risks, Sean McNamara told Canadian Contractor. McNamara is a commercial sales broker with Mitchell Whale Insurance Brokers Ltd. based in Whitby, Ontario. “Whether a contractor is working from home or from an office, it’s treated the same. The liability aspects wouldn’t come into play through the home policy if something business-related happened.” It’s important that contractors understand that the size of the operation, even a one-man operation, has no bearing on liability risk. “You are now doing things for other people, and your personal liability coverage is not going to cover that,” McNamara said.
That’s why it’s vital that a general liability policy be established encompassing all aspects of the business, McNamara explained, with $1 million coverage being the starting point. The coverage wouldn’t just cover actual work being done but also all aspects of the business operation. “It would even include something like taking the client out for dinner, and something happens,” he added.
Home policies are very limited in terms of physical loss and damage
The same applies for physical losses related to the business, McNamara said. Although some home policies may cover up to $10,000 of business-related losses, commercial coverage would include repairs to the space itself and all that is contained within (computers, printers, copiers etc.) in case of a fire, flood, or theft. Even the loss of the company laptop when away from the office would be covered.
Interestingly, McNamara comments that contractors may have less need for business interruption insurance per se than other types of business. “If a contractor’s shop or office burns down, they probably can still go and do their work on site. However,” he adds, “they may have costs associated with the need to expedite some equipment and supplies, or to secure an alternate warehouse, for example, and would therefore be looking at certain specific coverage for that.”
It almost goes without saying that vehicles driven for business purposes should be identified and insured as such so that the liability and damage coverage is suitable, even if they are also used for personal use.
Continued business growth triggers new insurance coverage requirements
If your business has been steadily growing, you might be due for a serious review of your commercial or business insurance needs. Perhaps you now have three or four employees such as estimators and administration staff working in your home office. Maybe you converted some spare space into a meeting room and have sub-trades, suppliers and clients dropping by for consultations.
If space on your home property has allowed it, perhaps you have added a storage facility for tools and machinery. Obviously those buildings and contents must be insured. Maybe there are work-related deliveries being unloaded at your home location. These increased business activities create a need for appropriate insurance coverage.
Play it safe by calling in the insurance pros
The best path to take is to have an insurance representative specializing in the commercial field visit your home base and conduct a risk assessment of your business. An insurance expert could identify specific risks and recommend the correct level of protection coverage. “Every individual business has different types of needs,” McNamara said, using the example of a landscaper whose net income may be small but the value of the leased equipment is high. A loss of machinery without coverage, owned or leased, could put a contractor out of action for quite a while. Appropriate and complete coverage makes smart business sense — scrimping on insurance could leave you vulnerable to risks and potential costs well beyond any incremental premium cost.