By running a business out of your home, the risks can add up fast. Since you see customers, you could be sued if someone trips on the steps. A short in your dryer or other salon equipment could cause a fire. Your have inventory or equipment that could be stolen. All of these are risks, but the biggest risk of all is assuming that your homeowner's policy will cover these damages.
Talk to your agent, but normally regular homeowner's policies cover only a fraction of business-related claims -- yet many salons and home-based businesses don't buy additional coverage, leaving them potentially exposed to huge losses.
I read somewhere that a typical homeowner's policy covers only about $2,500 of on-premises business equipment, and just $250 off premises. In addition, the policy is unlikely to contain any liability coverage for business-related accidents.
Given the risks, experts advise home-based entrepreneurs to beef up their coverage by buying business insurance. There are three general types of policies available. The best choice depends on the size and nature of the enterprise.
First, there are endorsements, also known as riders. These are provisions added to your existing homeowner's policy that bolster the coverage to include your business. If you opt for this type of coverage, check whether it includes liability insurance for your business -- if not, you may need to purchase a separate liability policy. An endorsement usually doesn't offer a great deal of coverage, so it's probably best for businesses with a small amount of equipment and space that don't get visitors or deliveries at the home. A typical endorsement might cover $5,000 of contents and $1 million of liability for about $200 to $250 a year. That's on top of the homeowner's policy.
Secondly an in-home business-owner's policy combines coverage for the home and the business into a single contract, eliminating duplications and gaps in coverage. This type of policy, which generally starts at around $100 to $150 on top of the regular homeowner-policy costs, usually covers you for liability and loss of income. It's a good choice for businesses with limited risk exposure, but not if much of the business is conducted outside the home, because the policy covers only household activities and property.
Finally a business-owner's package policy is the most comprehensive type, and is more like a regular commercial policy than the other two options. It's completely separate from the homeowner's policy, and coverage usually includes liability on and off premises, business property, loss of income and injury.
This type of insurance will probably be best for home-based salons. This option could run about $250 to $500 a year, but may cost more depending on how risky your business is.
In summary, talk to you agent. Make sure that the agent knows everything about your business so that he or she can properly advise you.
Larry Kopsa CPA
