SPECIAL TO THE STAR
It wasn’t until a valued customer called, freaked out by a rogue bumble bee she found resting dead in her loose leaf tea, that the risks of running a home-based business dawned on Hatem Jahshan.By then, Jahshan and his wife Tonia had been operating their tea party consultancy, Steeped Tea, out of the converted basement and two-car garage of their Hamilton home for a full year.
Though he also runs a fast-food restaurant, Jahshan knew zilch about protecting his home-based business.
“In fact, it felt like you didn’t even have to worry about insurance when you start your home business. As a business person, I like to hang out with business people, and nobody’s got insurance. It’s a very, very quiet issue that nobody talks about,” he said. “Usually, you start thinking about insurance when bad things happen.”
Facing added premiums can be daunting for the small business owner, but insurance shouldn’t be a dirty word, say the experts. No matter whether you’re running a full-scale taxidermy outfit or typing data into a single laptop, protection is integral to a savvy business plan.
“The worst case scenario is that you could be financially ruined if you don’t have insurance,” said Peter Warner of the Insurance Bureau of Canada.
“A policy will cover anything pertaining to running your business.”
As soon as doing business from home enters your mind, set up a meeting with your insurance broker, agent, or the company that insures your home, he said.
They’ll listen to the particulars, asses whether you’re underinsured and offer options to ease the nerves.
In many cases, the company providing your home or “property” insurance can add an extension to your homeowner’s policy, protecting you against common business risks.
Standard property insurance rarely protects anything business-related. Should fire rip through your home, compensation won’t be offered to replace computers, printers, fax machines, samples and paper records. And it won’t protect you from a lawsuit.
Generally, “home-based business” or “home business” insurance provides three areas of coverage: business property; business interruption; and legal liability.
The first protects property kept on or off the home premises, including inventory, samples, supplies, tools, filing cabinets, computer equipment and software.
If disaster strikes the home, rendering office space unfit for use, business interruption coverage pays the cost of your temporary office relocation, thus insuring your products and services are delivered to customers.
Legal liability coverage – usually set at $1- or $2-million – becomes a lifesaver if your company’s products or services cause harm to a customer. If Steeped Tea’s frazzled caller had alleged trauma or an allergic reaction to the pesky bee (which likely slipped into the mix when the tea was being dried in India’s fields before export) this coverage would have paid for legal defence or compensation ordered by the courts.
A classic example of legal liability involves a delivery person who slips on a piece of ice while carrying a package up your front steps; falls and breaks a leg; then sues.
“The liability portion of your home insurance doesn’t protect you, because the activity was directly related to your business,” Warner said.
Insurance providers calculate premiums based on exposure to risks – the possibility of loss – receipts and how much income you’re making from the business. The lower both are, the lower the premium. Knitting sweaters and selling them online is likely to be considered less risky than running a massage clinic that brings clients into the home.
Premiums are likely to run several hundred dollars a year – usually not more than $500, according to the Insurance Brokers Association of Ontario. But if your business liability is higher than that for your property policy, it will probably be boosted to the same level, potentially costing you more.
Most insurers keep lists spelling out what is or isn’t likely to fall under their home business insurance. The tricky part of the equation arises with vastly increased exposure. The line blurs between where home business insurance ends and commercial insurance begins.
To assess whether obtaining a heftier policy might be wise, look at how often clients, or consumers, visit your home and also, whether you run the risk of “professional” exposure. The latter occurs when a business person provides advice or expertise to a client who later might theoretically allege it caused them financial or other harm – for instance, an accountant.
There are no hard and fast rules when it comes to navigating home-based insurance coverage. When in doubt, call a broker – who represents multiple insurers rather than a single provider – suggests Bryan Yetman, IBAO president-elect.
“You can have a candid, honest conversation with your broker. They’ll give you a true evaluation and then you decide,” he said.
“Shop around,” agreed Catherine Swift, chair of advocacy organization Canadian Federation of Independent Business, adding the biggest complaint mounted by members is around insurance costs and short notice of cost increases.
Every business presents risks, but someone who buries his head in the sand could be making the riskiest move of all, the experts agreed.
“(Insurance) brings me peace of mind now,” Jahshan said. “Once you have insurance you can remove fear out of the way and you can actually focus on bettering your business.”