WoodWorking Home Business Insurance

Filed in archive management on April 25, 2007

Found this question and answer column of an online news site useful to those looking to protect their home businesses with a business insurance.

Home Business Insurance Question: My husband and I have successfully converted a woodworking hobby into a profitable sideline business that we operate from our basement. Sales have been growing thanks to eBay and search engine advertising. Recently I was asked by a banker about our insurance coverage. Since we operate from our home, isn't homeowner's coverage enough? What kind of insurance do we need?

Answer: To determine your insurance needs, you really have to start by asking what types of claims or losses are most likely to scorch your business, your home and your sideline business income. Given the type of products produced in your basement, I suspect that your homeowner's insurance is not enough coverage.

Here are some basic considerations:

Business equipment: Computers and general-purpose office equipment that are kept in a home can be covered by a homeowner's policy up to some relatively low limit for business-related personal property -- usually about $2,500. However, unless you specifically buy extra coverage, your homeowner's policy may not be enough to pay for the "basement full of machinery" that you describe in your longer letter. Tech-oriented entrepreneurs who house expensive servers, cameras and other equipment in their homes may be underinsured, too, if this equipment is deemed more business property than personal property.

Loss of use: Most homeowner's policies offer some compensation for families who have to move to a temporary residence after a fire or other "covered event." But you can't produce your toys, salad bowls and other wood products in a hotel room. If you want a fast disaster-recovery fix, you have to buy a small-business insurance package that includes business-interruption insurance.

Liability: Businesses that serve customers in the home may need liability coverage offered under a business policy, not a homeowner's policy, to handle onsite "trips and falls." If you don't allow customer visits but have employees, you still might add extra business insurance to complement your state's workers'-compensation plan.

Product liability: Most chain retailers require businesses to present proof of product liability insurance coverage before issuing purchase orders. They also know that toys are especially prone to costly consumer claims and litigation. If your business is not incorporated to help shield your family from business liabilities, you may want to buy a business policy with product liability coverage.

John Ryan, personal lines product manager for The Hartford Financial Services Group, a leading small-business insurance provider, says home-based business owners get into trouble when their businesses outgrow their homeowner's insurance. Ryan says: "Small-business owners assume that business insurance is expensive. Today, a relatively low-exposure small business can purchase business insurance for as little as $500."

via Seattle PI