Does household insurance cover home-based businesses?

Many entrepreneurs running small businesses from their homes believe that their business activities are covered by their household insurance policies.

Yet “most household insurance policies do not cover business property or business liability” says Gari Dombo, Managing Director, Alexander Forbes Insurance.

So, while operating a small business from home can bring down business overheads, “it can also bankrupt you and your business if there is no proper insurance cover in place to deal with losses “warns Dombo.

For example, “a household policy will not cover the theft of computers from an internet café that you are operating in your garage” explains Dombo.

If your business increases the risk to your home and its contents, an insurer may reject a claim. So, regardless of how big or small your home based business is, it is always advisable to consult your insurer to make sure that your home and contents are still covered.

There are two ways for entrepreneurs to insure home based businesses.

Firstly, for less complicated, one person businesses like selling Tupperware, one can request that business assets be covered on their household policy. One may also be able to have these assets covered when they are away from home. “This is easily arranged where minimal risk is involved,” says Dombo.

Business liability cover, however, cannot be added to a household policy. This should be purchased in addition to household cover.

Secondly, larger businesses, should take out separate business insurance, to cover business assets, business liability, business interruption and more. You need specialist business insurance advice for this.

Big or small, you should fully disclose what any business operating from your home does, how many employees it has, and what business assets are on the premises.

Depending on the nature of the business, some household insurers may continue to cover your home. They may even allow some degree of cover for the business goods if you ask for it. Thereafter, your premium would be adjusted accordingly.

“If you use your private car for business and get involved in an accident, your insurer will reject your claim, if you have not extended your cover to include business use,” warns Dombo.

In short, any risks which you don’t discuss with your insurer may result in having claims rejected, placing your business under financial pressure.

“Instead insurance should be structured into the business as a strategic asset, used to make good any losses that the business may suffer, ensuring that loss or disaster doesn’t mean the end of the business” concludes Dombo.