NAIC Warns Home-Based Businesses At Risk of Costly Insurance Surprises

New Insure U tips and tools help entrepreneurs identify coverage gaps
between personal and commercial insurance

WASHINGTON, D.C. (Feb. 24, 2015) — For many, achieving the American dream comes with the freedom of operating a home-based business. More than half of the 28 million small businesses in the U.S. are home-based.¹  In fact, 59 percent of businesses in operation for more than three and a half years operate from the owner’s primary residence.²  But without proper insurance planning, even the most promising home-based business dream can quickly turn into a nightmare.  The National Association of Insurance Commissioners (NAIC) encourages home-based business owners to visit the Insure U for Small Business  Web site channel to get smart about business insurance early to avoid costly misunderstandings later.

“Many home-based entrepreneurs incorrectly assume their business assets are covered by personal insurance policies,” said NAIC President Monica Lindeen and Montana Commissioner of Securities and Insurance.  “Unfortunately, business owners often don’t discover this mistake until after a major incident puts their business and personal finances at risk.  When it comes to insurance, what you don’t know definitely can hurt you.”

Blurring the lines between home and work can have unexpected and costly impacts on all types of personal insurance.  To help entrepreneurs get focused, the NAIC developed Get Ready resources for home-based business owners.  The resource kit includes tips and tools, such as Five Tough Questions to Ask and a Take Action Now checklist for small business owners.

Consider the following personal insurance implications of a home-based business:

• HOME.  Homeowners’ or renters’ insurance policies are rarely adequate for business needs. Owners may want to investigate a business owners’ policy or general liability, business property and business interruption/continuation insurance.
• AUTO.  If you own or lease a vehicle almost exclusively for business use, list the business name as the principal insured. Also consider increasing coverage to protect permanently attached items such as a generator or storage unit.
• HEALTH.  There are a variety of sources for purchasing HMOs, PPOs, EPOs and other popular health insurance plans at group rates. Under the Patient Protection and Affordable Care Act (ACA), business owners and the self-employed who purchase coverage through new health insurance marketplaces may qualify for tax credits.
• LIFE. If the home business is a partnership, consider key person life insurance which names each partner in a business as beneficiary on the other partner’s policy. If one partner dies, the other can use funds to buy out heirs, pay off loans or continue operations.

For more tips and tools to help consumers navigate complex insurance issues associated with home-based and other small businesses, visit www.InsureUOnline.org/smallbusiness.  Consumers interested in insurance information specific to where they live can find their state insurance department here.

Audio:  Lindeen Discusses Insure U for Small Business

Sources
¹ U.S. Census, Small Business Administration (SBA)
²Global Entrepreneurship Monitor 2012 United States Report (Babson College)