Nearly 600,000 one-person firms operate in the residential building construction space, according to the U.S. Census Bureau. I believe it is safe to say many of these businesses operate out of the owner’s home, although this number is not readily available.
Almost 60% of home-based businesses do not have proper business insurance coverage, according to a survey fielded by a national alliance of business owners and their employees who offer insurance and financial services products. This should serve as a wake-up call for all home-based businesses including contractors.
Home-based business owners should begin managing their business risk by determining if they have the right type and amount of insurance coverage prior to an insurable event. A trusted insurance broker can help with this process.
As many homeowners’ policies cover only up to $2,500 for damages to business property, home-based contractors should not rely on their homeowners’ coverage to protect their businesses. Instead, they should insure their business against risk with a business policy.
What’s more, homeowners’ policies may not provide coverage for the following risks to your home-based contracting business:
- An employee is injured while on site at your home-based business. This could happen when loading tools and building materials into a truck. A workers’ compensation policy will transfer this risk to insurance. In fact, in all U.S. states except Texas, business owners are required by law to carry workers’ compensation insurance.
- Income is lost due to damage to your home. Business interruption insurance (also known as business income insurance) covers the loss of income a business suffers after a disaster. The income loss covered may be due to disaster-related closing of the business facility or due to the rebuilding process after a disaster.
- Your computer network is hacked and clients’ information is stolen. Cyber security insurance will protect your business against targeted cyber attacks and even the occasional misplaced laptop or personal device containing confidential material.
When selecting insurance coverage to protect their businesses, home-based contractors should account for the following:
- Is business equipment, such as tools, inventory or materials, stored at the home? Commercial property insurance protects physical assets from fire, explosions, burst pipes, storms, theft and vandalism.
- Are business items delivered to the home? General liability insurance will protect your business from the potentially ruinous costs of lawsuits over personal injuries suffered by someone making a delivery.
- Are vehicles driven for the business? Commercial auto insurance provides protection for any vehicle designated for business use against both property damage and liability.
Prior to an insurable event, you should take a complete inventory of equipment, furniture and all the items used to run your home-based contracting business. This list would be an invaluable tool when filing a claim following a loss.
The Pennsylvania Insurance Department offered this advisory for Pennsylvania business owners following storm damage: “Business owners should contact their insurer as soon as possible after their property is damaged by a storm, follow instructions from the insurer, and keep a record of people to whom they spoke. Also, keep all receipts, and provide the insurer all information needed to avoid delaying payment of a claim.”
Home-based contractors should take the following actions after a loss:
- Take photographs or video of damage before clean-up or repairs.
- Keep track of damage to the business property, as well as damage to property owned by others that is in the business’ care, custody or control.
- Record lost business income and extra expenses.
While home-based business owners should promptly make repairs to prevent further damage to buildings and property, they should delay permanent repairs until the insurance company can inspect the damage and approve repairs.
Finally, home-based business contractors should choose a trusted insurance broker who takes time to learn about all aspects of their business risk before bringing it to market. Your trusted broker will choose the right types and amounts of insurance coverage appropriate to your home-based contracting business, and work through the claims process in the event of a loss.
Keith Boyer is Managing Partner at KMRD Partners, Inc., a risk and human capital management consulting and insurance brokerage firm located in the Philadelphia region serving clients worldwide. KMRD works to protect clients’ assets by reducing their cost of risk. Keith can be contacted at [email protected]