Just as you insure your home and car, your small business may also need insurance to protect it from unexpected events such as fire and theft or a liability claim – which is when someone sues you. This could mean that you need business insurance for your home-based business.
Personal insurance might not cover business use
Business insurance is different to personal homeowners’ and vehicle insurance. So even if you have a personal insurance policy to cover your car, home and laptop, you may not be covered if you use these things in your business.
Why? Well your homeowner’s policy normally covers your home for personal use so if something you use at home for your home-based business is stolen, your homeowner’s insurance policy won’t cover it or pay a claim because it was being used for business not personal matters. Similarly, your vehicles may only be insured for personal use and going to work, not when they are used for work or business purposes.
This means that you either need to take business insurance or update your personal policy to protect your assets when they are used in your business.
What to insure?
Start by identifying your items of value, and your potential liabilities.
Items of value might include:
- Laptops, cameras and other electronic equipment and devices
- Cars and other vehicles
- Furniture and appliances such as beds, desks, chairs, tvs and washing machines
- Software and other intellectual property such as data and apps for your business
- Clients’ property on your premises such as cars, laptops, jewellery
- Cash takings
Potential liabilities include:
- Damage to a client while they are on your property – a client may slip and fall leaving you liable for their healthcare costs
- Damage to a client while they are consuming your product – such as eating food that is off or using an app that has a virus
- Damage to your reputation
- Fraud by someone who is working for you
When you’ve identified your items of value and potential liabilities you need to put a value to them – the rand amount you would need to replace them or the amount you could be sued for. You can search on the internet for values, speak to fellow small business owners or your insurer about how much liability claims can cost.
How do you protect yourself?
Next, you need to look at how you can protect yourself against losses and claims. We have some options to consider below:
Update your personal insurance policy
Your insurer may allow you to insure certain items such as equipment on your homeowner’s policy, but you must specify they are being used for your business. Contact your insurer to find out if they can cover your assets when you are using them in your business.
Take out business insurance
Many companies offer small business insurance products. Tell your insurer what business you are running and ask them what insurance options they have. You can also ask them about reputation damage which some insurers will cover you for. Business insurance products are flexible so you can tailor them to your own needs and affordability.
Make sure you ask about the following when you are taking business insurance:
- Liability insurance
If you are offering a food service – perhaps selling hot dogs, salads, samoosas, cakes or biscuits you need to think about what would happen if someone suffered food poisoning or an allergic reaction. You may not think it is worth the cost of insurance if you only sell to family and friends but be careful that you are not exposing yourself to too much risk. Food poisoning can make a friend not so friendly! Most small business – a handyman service, or from-home beauty salon for instance – come with some level of potential liability.
Liability insurance, sometimes called indemnity insurance, can protect you against these kinds of claims. Your insurer should include liability insurance on your policy. There are also specialist liability insurers you can approach if you are offering a specialised service – such as plumbing or electrical work or healthcare services.
- Insuring your cash
You may have a great day at the market stall, but while you are busy selling someone is watching you and waiting for a chance to take your cash. Some companies offer insurance for cash takings, but you may also need to meet some requirements, for instance, install a safe in your car.
- Cyber insurance
Hacking, phishing and ransom demands for locked information are some of the problems cybercriminals can cause. Your business website may go down, your contacts may be stolen, yours or a client’s bank account details may be hacked. The loss to your business and potential clients can be huge. So, check with your insurer or platform what kind of cyber insurance they offer and how it works.
Use your platform’s insurance
If you are part of a platform such as Airbnb or a web hosting service, ask them what insurance they offer. Airbnb has host protection insurance, host guarantee and experience protection insurance. These cover certain liability claims up to a specified amount. Web hosting services may offer some cover for cyber insurance, so your data is protected.
Platform insurance is a great way to get some cover, but the cover is usually limited, so make sure you thoroughly investigate it, so you don’t place yourself at too much risk.
Reduce the risks
When you’ve got the insurance part covered, find out how you can reduce the risks you face in your business.
These can be anything from having working fire extinguishers on your property and knowing how to use them, to indemnity signs and alarms and electric fences.
If you work with food it may be finding out where the food comes from, checking expiry dates and keeping a record of all food used and where and when it was bought.
If there are risks, alert your clients and guests to them so they aren’t caught unawares, and have emergency numbers close to hand.
What happens if you don’t have insurance?
Well, in the case of theft or property damage you would have to pay for new equipment and repair costs yourself. In a liability claim you may be sued in your personal capacity. Liability claims can run into millions, so it is a good idea to have some kind of liability insurance if you have identified potential liabilities.
Be a realist and an entrepreneur
Don’t let all this put you off starting a small business – it is a great way to earn extra cash and build your entrepreneurial skills. Just be aware of the risks and make sure you can protect yourself and your clients if something should go wrong.