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Home-based business insurance: Do I need it to WFH?

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Whether you’re running a home-based business in Canada or working from home with your company laptop, knowing your insurance requirements is valuable.

In a post-COVID world, we adapt to our new realities. That could mean fewer office spaces, and more flexible work from home (WFH) policies. It’s critical to understand how it works for your situation.

There are several variables in a home office insurance policy. The main difference is running an operation from your house vs. your employer allowing you to work from home. Working from home with company equipment is low risk.  But running a home daycare or having a carpentry workshop in your basement and your standard home insurance won’t be enough.

Should you have a larger operation, with clients coming and going, expensive tools, and an increase to potential liabilities, look for a commercial home-based business insurance policy.

If I’m working from home and someone steals my company laptop, what happens?

“Employers working for others would traditionally be covered under their employer’s commercial policy,” says Jamie Kula at KRG insurance brokers. “For equipment such as company-owned laptops, [commercial] policies have a computer “floater” on policy to cover equipment while in or out of the office.”

In all likelihood, your company would supply you with a replacement. Since it’d be less than the deductible, it’s not worth a claim. A deductible is the money you must pay before your provider releases any money to you.

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Do you need home-based business insurance?

You don’t need an elaborate commercial insurance policy a large company requires. But, best to consider adding endorsements to your home insurance or even buying a portion of separate business coverage to make sure you’re always protected.

Your standard home insurance includes low limits for any business property, not covering much more than essential tools like a laptop.

The Co-operators, for example, their home policy, comes with just $2,000 in coverage for commercial tools — and that’s only when those items are physically in your home. That won’t cover the expensive machinery and supplies in your garage.

RBC’s contents insurance covers business property on-premise up to $2,500. Still, it explicitly excludes any inventory, and it doesn’t cover items when they’re away from your home.

If you’re not happy with your provider, shop online for home insurance quotes to see if you can find coverage to better suit your needs.

How much is a home-based business add-on to your home insurance?

Prepare to spend between $25-$50 for an add-on to your existing homeowner’s insurance for a decent home office insurance policy. That’s enough money to extend your basic liabilities and contents insurance portion of your policy by upping content limits by a few thousand dollars. It’s at least enough to cover your computer, printer, extra monitor, and maybe some industry specific equipment. 

Adding an endorsement to your home policy is an easy way to make sure your business property is protected. Call your provider and ask how much extra the business add-on and the resulting extensions of coverage would be.

If you’re temporarily working from home due to COVID-19, or other reasons, speak with your employer about how you might be covered.

How much is home-based business insurance in Canada?

“Costs depend on many variables including type of operations, revenues, experience, value of contents and limits of liability, but I would say the minimum premium could start at $1,000 annually,” according to Kula.

House insurance alone is not enough for a home-based business to function. 

Kula says, “People that operate businesses out of their home are required to carry separate liability and property policies to cover liability and contents associated with the business. “

What he’s talking about is not an add-on to your home insurance policy, but rather a separate policy covering your more “commercial” activities. Whether you’re an in-house barber, run a tattoo parlour, or make cookies, you can decide how much home business insurance you want.

How home business insurance works

There are four standard options to business insurance

  • General liability insurance

This general insurance protects the business from liabilities due to negligence inside and outside the shop or business. This coverage is for any risk that involves anyone who suffers injuries as a result of business activities. Expect to pay between $250-$500 per year for a small business general liability insurance. If you make a claim, you’ll probably have to pay $1,000 deductible.

  • Product liability insurance

Product insurance protects the business from legal action resulting from a product made by the company. If you make soap, and a client sues after developing a rash on their skin, you’ll use this insurance. Expect to pay $500-$1,000 annually, depending on the products you’re making and the associated risks. The deductible is in the $1,000 to $2,500 range should you need to make a claim.

  • 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. Most of the time, it’s a union regulation or provincial or federal law, so the insurance is mandatory. It costs you somewhere between $800-$1,200, but the deductible will be between $25,000-$50,000. There are severe consequences for making errors.

  • Workers Compensation Insurance

In Ontario, it’s the Workplace safety and insurance board (WSIB). In BC and Saskatchewan, it’s the Workers Compensation Board. It mainly serves construction businesses covering injuries to their workers on the job site. The cost is a percentage of your revenue based on the trade you’re providing.

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What policy is right for your home-based business?

Standard home insurance includes some liability coverage, so if a mail carrier slips on your porch, you have coverage. It might not be the same for a client or colleague, however, who gets hurt on your property. So, maybe an endorsement to your home insurance policy is enough.

However, if the Canada Post worker falls while dropping off a business package, you may need to explore commercial general liability coverage.

Other coverage to think about depends on what exactly your home business offers. If you make any product from artisanal olive oil to bespoke suits), you need product liability insurance, which a home policy doesn’t cover. So, if you buy this extra coverage and your homemade jam gives clients a horrific rash or a client slips and breaks his/her leg at your home, your insurance provider will step in.

You might also need to buy errors and omissions liability insurance given your profession, as mentioned earlier. This coverage protects people who offer professional advice such as lawyers, real estate agents, accountants, and consultants.

Let’s say you provide HR consulting from your home office, and a client is facing a gender discrimination lawsuit after acting on your ill-informed suggestions. A minor event can turn into a mess. If you forget to sign one page, or don’t explain what you thought was a simple concept, your client could lose out financially and sue you for damages. In those situations, the errors and omissions policy would kick in and cover legal fees and any damages awarded to the client.

The bottom line

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 your claim or void your policy. They may not agree to the material change in risk that a home office presents.

Therefore, the most valuable piece of advice is to communicate with your insurance provider about your plans. They can help you understand the risks and coverages available. They’re working with you, don’t lie to your insurance company, it’s fraudulent behaviour and only adds risk.

Right now, most insurance providers recognize many people are working from home during the pandemic. While it’s not mandatory to advise your home insurer of the change, it’s smart to keep them informed about changes, even upcoming changes, to your insured assets.