Running a business from home can make financial sense. You save on overhead and can ease into a new endeavor without investing in office space. But when it comes to insurance, things can get a bit confusing. Your home insurance won't cover your home business assets, but you still need to tell your insurance provider if you're running a business from home. Here's what to understand about where your home insurance stops and business insurance begins.
Home Insurance Isn't Business Insurance
You may assume that home insurance covers everything under your roof. But the equipment and inventory that belongs to the business is excluded. According to the Insurance Bureau of Canada, there's a small allowance for books, tools and instruments for your business. That gives you some protection, but not nearly enough.
To be fully insured in the event of damage or loss, you'll need to get separate coverage. This may include contents insurance to protect the assets held by the business that you keep at home. You may also want to insure yourself as the business owner. Liability insurance offers a safety net if you see clients at home, and they suffer injury while on site.
There are many other ways you can protect yourself and your burgeoning company, including accounts receivable insurance and professional liability insurance. Start by reviewing your current home insurance policy so you know where you stand.
Also, don't forget your vehicle. If you use your car for your business -- to make deliveries, for example -- you'll have to give your auto insurance provider a heads up.
Tell Your Insurer About Your Business
You might choose to go ahead with your home-based business and not buy additional insurance. But there's another risk: your home insurance policy may be invalid if you don't tell your insurer about your new role as entrepreneur.
Part of your personal home insurance policy agreement is disclosing how the property is used. If you use your home for a business, no matter how small, you have to disclose that fact. Otherwise, your insurer may not pay out any claims -- not even for the areas of your home that have nothing to do with the business.
There's the added risk that equipment you use for the business can cause damage to the rest of your home. If your insurer doesn't know about the business, they might not cover you for that damage. That's the case even if it would otherwise be a valid claim if it had another root cause. Other coverage, like for the contents of your vehicle, cannot be claimed in the event of damage or theft if you use those contents for business.
The bottom line: talk to your insurer. You may have to change your coverage, but you will be protected if the time comes.
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