Operating a home-based business allows you greater flexibility with no commute and better overall work-life balance. However, having a home-based business will present you with some challenges if you don’t have the right insurance coverage. For starters, you should not assume that your business will be covered under your home policy because business activities are excluded from coverage. So you may be asking yourself “do I need business insurance?” In this article, we will look at what qualifies as a home-based business, the types of coverage available if you are running a business from your residence, as well as answer some frequently asked questions about home-based business insurance.
According to the Canada Revenue Agency, small businesses represent a staggering 97.9% of all businesses. Without question, small businesses are the backbone of the Canadian economy. Many of them operate out of their owners’ homes, making a home business insurance policy necessary for a lot of Canadians. But with the arrival of the pandemic, you may find yourself working from home regardless. With greater flexibility shown by employers to improve Work From Home (WFH) options, you may be wondering: Do I need business insurance, too?
What is home-based business insurance?
As more Canadians operate businesses from their homes, they may not be aware of how this affects their home insurance. Even if you have a part-time home business, you may need to consider home-based business insurance to make sure you and your business property are covered. Your home insurance policy does offer a small coverage limit for books, tools and instruments necessary for a business, profession or occupation. However, if you’re running a business from your home, you may not have enough insurance to protect your business equipment. A typical homeowner’s policy provides only $2,500 coverage for business equipment, which is usually not enough to cover all of your business property. It may extend to some business property stored in your home, but not necessarily to merchandise, computers or specialized equipment. As such, if you operate a business from your home, you should inform your insurance representative and discuss obtaining additional coverage to help manage the risk of a potential loss.
Home-based business insurance can pay out for property damage, injuries related to the business (like a client who takes a fall in your office), employee injuries and lawsuits. Coverage is available as an extension of your home insurance because as long as your home serves as the main office of your business, you would qualify for this insurance. Some insurers have made provisions for the new wave of work-from-home status since the beginning of the pandemic. Intact Insurance, for example, offers a low-cost option which is ideal if you are either a self-employed worker or a small business operating out of your home. It’s called Coverage for Home-Based Workers, and it can be added to your home insurance policy. This protection includes $10,000 to $50,000 coverage for business property.
Please note: If you are employed by another company yet work from home on occasion, this does not qualify for self-employment insurance.
Why do I need home-based business insurance?
There are a variety of factors that could impact your home-based business, and they stem from the type of business that you may run. This includes:
- Your inventory gets damaged or stolen. Unexpected risks, such as fire or flooding
- A customer catches a mistake in your work. If a client suffers a loss because of errors in your work, they could file a costly lawsuit against your small business. Lawsuits stemming from faulty work can cost small businesses an average of $14,000!
- Your essential business equipment breaks. If your specialized equipment gets damaged from a fire, flood or mechanical breakdown, your warranty might not cover it. Most home insurance policies also don’t provide coverage if your specialized equipment gets damaged.
- A visitor gets unexpectedly injured. Unexpected injuries that occur on your property can lead to costly lawsuits. When a costly lawsuit stems from a slip-and-fall injury at your home, your home insurance policy may not cover it.
Three different ways to insure your home-based business
- Add-on endorsement to your home policy: Add a rider to your existing plan. This is ideal for freelancers and part-time business owners.
- Home-based business insurance policy: A standalone policy. This is ideal if you have clients come to your location or if you have inventory on hand.
- Commercial home business insurance: Most comprehensive. Similar plan to what small businesses use; allows for more flexibility and solutions. This is ideal if you have employees and more risks.
How do I qualify?
For your business to qualify for coverage, all it needs to do is meet some basic home business insurance requirements. You’ll want to look at your business carefully to make sure it doesn’t need a dedicated commercial insurance policy instead, which would cover a much wider set of business-related risks, if applicable.
Here are some criteria that will help you determine if your home-based business qualifies for this type of policy:
- The named home owner or family member living at the residence must own and operate the business.
- The business owner needs to be the sole proprietor, but spouses living at the same address can be partners.
- The business needs to operate within your home and nowhere else.
- The address needs to be used as the primary residence since this is an add-on for home insurance.
- The business can’t have employees.
- Income can’t exceed $250,000 CAD.
- The space in your home needs to serve as your principal place of business.
FYI: If you live in a condo unit, then you may need to check your condo insurance policy to make sure that operating a business doesn’t violate the terms of your agreement.
What does a home business endorsement cover?
While every situation is unique, home office insurance helps fill in the gaps left by traditional home insurance and the needs of most growing home-based businesses. As an extension of coverage added on to your existing homeowner’s insurance policy, this add-on endorsement protects your business against third-party bodily injury and property damage claims or to repair/replace business property.
It also covers losses or damage to property from perils, such as fire, wind, storm and flooding. It also provides protection for your data and systems in the event of a security breach to your home computer or laptop. Finally, it will also cover business interruption insurance if anything were to happen to your home because of an insured loss.
The cost of business insurance
You should be prepared to spend between $25-$50 for an add-on to your existing homeowner’s insurance policy for a decent home office insurance policy. This will allow you to extend your basic liabilities and increase the contents insurance portion of your policy by a few thousand dollars. Adding an endorsement to your home policy is an easy way to make sure your business property is protected.
What if I need more coverage?
Home office insurance quotes work as an extension of home, condo or renters’ insurance policies so they cover freelancers and small businesses with sole proprietors. If your business grows larger than the typical one to two-person home-based business operation, then you’d need a proper commercial policy to cover the risks of things like:
- Higher income
- Cross-border dealings
Your isure representative will be able to advise you as to what you need for your particular situation.
There are four standard options to business insurance:
- General Liability Insurance: Protecting businesses from liabilities due to negligence inside and outside the shop or business.
- Product Liability Insurance: Protects the business from legal action resulting from a product made by the company.
- Professional Liability Insurance or Errors & Omissions (E & O) Insurance: Insurance that protects against legal action resulting from professional services rendered. Essential for occupations like doctors, lawyers, architects, engineers and realtors, to name a few.
- Workers Compensation Insurance: In Ontario, it’s the WSIB. It mainly serves construction businesses covering injuries to their workers on the job site.
FYI: If employees or clients are coming into the home for business purposes, the business owner may not be covered under the standard form home insurance policy for liability.
Let your insurer know what you are doing!
Even if you decide not to buy separate insurance for your home business, make sure to tell your insurance provider that your home doubles as a workspace. If you don’t, your insurer could deny a future claim or void your policy. They may not agree to the material change in risk that a home office presents.
FAQS for home-based business insurance
Does business insurance offer more liability coverage?
Yes. Liability is the greatest risk for home-based businesses. Commercial liability insurance would cover most damages awarded against you and would pay the legal costs to defend you in a lawsuit. Personal liability on your home would not cover such situations.
Is my home business equipment covered when it’s in my car?
Any product, equipment or supplies that might be stolen from or damaged while in a vehicle will not be covered under your auto or home insurance policies. It is important to have coverage under the home business endorsement policy or a specific commercial policy.
What about any business equipment if I haven’t declared my home business?
You must declare your home business to your insurer or the business equipment will not be covered under your homeowner’s policy. Not disclosing a home business to your insurer can result in your policy being voided by the insurer.
Do I need “errors and omissions” insurance?
Yes, especially if you’re paid to give professional advice. This is a specific commercial coverage for professional liability and is not covered under a home insurance policy. If you are a lawyer, doctor or financial advisor, you would need this type of insurance.
Will my home-based business affect my mortgage?
The short answer to this, is yes. If you work from home during normal circumstances, your home insurance will be affected. A standard home insurance policy will typically not provide sufficient coverage if you work from home, particularly if you run your own business.
If I’m working from home and someone steals my company laptop, what happens?
If you are an employee working for others, you traditionally would be covered under your employer’s commercial policy. For equipment, such as company-owned laptops, businesses have a computer “floater” on their policy to cover equipment while in or out of the office.
Will a comprehensive home policy cover my business needs?
Comprehensive or all-risks insurance isn’t enough because it covers you for dangers to your home structure, not your business operating within it.
Is home-based business insurance tax-deductible?
According to the Canadian Revenue Agency, you can deduct a portion of expenses for the business use of a work space in your home, including:
- Home insurance
- Heating materials
This doesn’t include all of your home—just the part used for your business. You’d need to establish how much of your home the dedicated work space acquires in relation to the whole home. You can then deduct that amount from your related home expenses.
Do I need business insurance as an employee?
If you’re just an employee working remotely, then no, not in Ontario. If you’re a full-time independent contractor, then it’s likely that you’ll need some kind of home office insurance. The reason for this is because independent contractors in Ontario are considered to be running their own business.
With all of its perks, there are some things you need to be aware of when it comes to ensuring that your home business risks are managed properly. Even if you have a part-time home business, you should consider home-based business insurance that ensures you and your business property are covered. Ask your isure representative to review your policy to determine the best course of action. Our experienced brokers will help guide you on whether your home-based business is covered by your home insurance, requires full-scale business insurance or lands somewhere in between.