Running a home-based business has many benefits – there’s no need to commute to an office, flexible hours, and fewer expenses such as gas and food court lunches. 

Operating your business from home also has less overhead, if only because you’re not paying rent for a commercial space. You also can enjoy tax advantages because the Canada Revenue Agency lets home-based businesses and self-employed contractors make deductions to reduce the taxes they owe.

But unique obligations also come with running a business from home. You could be subject to local zoning laws, or there may be municipal and provincial legal requirements you must fulfill, and you may require a business licence to operate.

Reasons to insure your home-based business

So, do you need business insurance to run your company? A private home insurance policy doesn’t cover many aspects of home-based businesses, including third-party liability, which is likely your most significant risk. 

Here are 13 reasons why you should get a home-based business insurance policy:

1. Home Insurance Doesn’t Cover Business Liability Risks

Your house or condo insurance policy covers unexpected events, such as fire, that might affect your residence. However, most homeowner policies don’t cover business-related liability claims, and your home insurance policy could be voided if your insurer doesn’t know you’re running a business from home. Commercial property insurance covers your home-based business if affected by fire, water damage, a natural disaster, theft, and vandalism. 

2. Protection for Your Inventory

You should cover your inventory or merchandise if you sell or resell products from your home. A comprehensive home-based business insurance policy covers the stock stored at your property. Having a contents inventory to catalogue the merchandise and your business-related equipment and furnishings is helpful if you must file a claim.

3. You’re Liable for the Items You Sell

If you make or sell food or clothing, and a customer sues you because they got food poisoning or the clothing was defective, product liability insurance may cover you for those expenses. You’re responsible for any product you sell, manufacture, or distribute.

4. You Might Have Professional Liability Risks

If you provide professional services or advice to your customers, there’s a risk of making mistakes or failing to deliver the promised results. Professional liability insurance, also called errors and omissions (E&O) insurance, can cover your costs if you’re facing a claim or lawsuit of professional negligence.

5. It Covers Injuries to Your Customers

If a customer or visitor (like a delivery person) is injured on your property, business insurance can cover their medical expenses and your potential legal fees associated with a liability claim.

6. Protection for Your Wheels

Not having to drive is one of the perks of working from home, but if you drive your car, truck, pickup, or SUV for business, you’ll need commercial auto insurance. A personal auto insurance policy does not cover vehicles when used for business purposes to transport materials, tools and equipment, packaged goods or people.

7. It Shields Sole Proprietors

Depending on the nature of your business, you may not be incorporated and are a sole proprietor, which makes you personally liable for damages or claims against your business. That means your personal property, including your residence, could be jeopardized if you’re subjected to legal action. Business insurance mitigates that threat.

8. Cybercrime Is Rampant

As most small businesses operate online, data breaches or cyber-attacks are a constant and evolving threat. Nearly half of Canadian small businesses (45%) experienced a random cyber-attack, and 27% endured a targeted attack in the past year. Cyber liability insurance can help if your business is hit with a cyber-attack.

9. You Could Be Forced to Close Temporarily

If your home-based business is disrupted due to a fire or other insurable loss, and you need to close while repairs are underway, how will you pay the bills and make up the income you lose? Business interruption insurance can help in such a scenario by covering your regular overhead expenses, such as rent or mortgage payments, lost income, employee payroll, loan payments, and utility bills, until you’re up and running again.

10. Homeowners Associations May Demand It

If you rent a home, townhouse, or condo and belong to a homeowners association, they may require you to have business insurance to cover any potential damage or liability associated with your business.

11. You Could Be Sued

While many insurance products cover liability costs, they don’t always include coverage for your legal expenses. Therefore, if you need to hire a lawyer, paying for legal expense insurance is considerably cheaper than paying a lawyer thousands of dollars for legal advice or representation if a lawsuit goes to trial.

12. Allegations of Intellectual Property Infringement

If your business is accused of using someone else’s intellectual property (IP) without permission, it can land you in serious legal trouble. If you’re using artificial intelligence (AI) tools to produce content and promote your business, it ups the risk ante. Business insurance can cover your legal costs and help resolve IP infringement allegations.

13. Being Properly Insured Inspires Trust

Having home-based business insurance coverage doesn’t just protect you against liability. It also provides peace of mind for your customers, suppliers, and partners and adds legitimacy by demonstrating you’re serious about your business and dedicated to serving your customers.

Steps Home-Based Business Owners Can Take to Mitigate Liability Risks

Insurance is the backbone of your small business’s risk management plan, but taking preventative measures to reduce the likelihood of damage and loss is equally important (and it can help keep your annual premium low). Here are a few ways to do that:

  • Implement Physical Safety Measures. Install smoke and carbon monoxide detectors, have a fire extinguisher, and get a security surveillance alarm system to deter thieves.
  • Keep Accurate Business Records. Maintain detailed records of your business transactions, contracts, and client interactions. Documentation can be crucial in case of a dispute.
  • Regularly Update Software. Keep your computers, operating system, and software up-to-date and deploy antivirus software to protect against cyber threats. No matter how small your business is, it’s not immune to a cyber-attack or data breach.
  • Train Your Employees. If you have employees, train them in safety protocols and cybersecurity and highlight the importance of protecting sensitive information.
  • Get Legal Advice. Consult with an attorney to ensure you have the proper legal contracts and agreements to protect your business.
  • Get Home-Based Business Insurance. Partner with a Zensurance broker who understands the specific risks associated with your business. They can advise what your home-based business insurance policy should include and review your policy to ensure it adequately covers your business, especially as it grows and changes.

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About the Author: Brandon Bowie

Brandon Bowie is a Team Lead, Professional Lines at Zensurance.