Do I Need Insurance to Run a Business from Home?
A business that runs from home has very similar risks to that of a business that operates from a commercial space.
Below are some examples of some home businesses and what risks they may have and which insurance policies can help protect your home business,
E-Commerce Businesses - No stock held at home
- Run from home
- No Customers to the home
- Items imported or Dropshipping arrangement
- No Stock held at home
High RisksÂ
Products Liability - E-Commerce Businesses that sell products to their customers can be exposed to claims for injury or property damage caused by the product that they sell. As they are the first point of contact in Australia rather than the manufacturer located overseas, the claims for the damages will be brought against the Australian business first.
Low Risk
Public Liability (slips and falls at your house by third parties such as customers) is a low risk if you are doing a dropshipping-style business where you don't have customers in your home.
Fire & Perils - if you do not hold stock from your home, there is no need to insure for stock cover against fire and perils such as weather events. You could consider insuring your contents items such as your workstation.
Money Cover - E-commerce businesses usually transact 100% online and it's rare to have physical cash at your home, so the need for theft of money is quite low.
Electronic Breakdown - This covers your electronic items such as phone systems, computers, laptops etc for breakdown. However, depending on your size and set-up, the cost to replace a computer system is quite cheap and the insurance is probably not worth it.
Machinery Breakdown - Covers breakdown to machinery that runs by a motor - fridges & fridges, machinery etc. A dropshipping business does not have a machinery breakdown risk.
Business Interruption - If you do not hold stock at your home, the need for business interruption insurance is low. It would cover your lost profits if you were unable to trade due to a fire/flood/storm that destroyed all of your stock for example. As it's likely that all of your business is done online through your computer, interruption cover is not a high risk.
Theft - If you do not hold stock from home, theft insurance is a low risk, Your home contents insurance policy may cover your business use a computer, but you would need to check your policy to confirm.
E-Commerce Businesses - Stock held at home
- Run from home
- Items Locally SourcedÂ
- No Customers to the home
- Stock Held At Home
High Risks -
Fire & Perils can be a high-risk consideration for your business if you hold a large value of the stock from the home. (cover for fire, storm, hail, flood, lightning, earthquake, power surge, landslide, cyclone etc)
Products Liability (Injury or product damage from the items you sell online) - The risk is the same for any business that sells items. The claim will be brought against you first as you're the first point of contact for your customer. The claim may also include your supplier however, this depends on the agreement that you have with your supplier. You may agree to waive your rights to subrogation. Doing this means that you are taking responsibility for the injury or property damage claims that are caused by the product that you sell.
Business Interruption Cover - depending on the level of stock you hold at your home, this could be a high risk. If a fire/storm/flood etc were to cause damage to your stock, how long would it take to order new stock, and to be completely operational before the insured event mentioned?
Transit Cover - Again, depending on the size of your business, transit cover could be a large risk. Transit Insurance covers your stock whilst in transit - import, export, and around Australia.
Theft - Depending on your stock, theft of stock from your home could be a high risk.
Low Risk -
Money Cover is most likely a lower risk as not many businesses carry cash. Money cover protects again theft.
Electronic Breakdown - This covers your electronic items such as phone systems, computers, laptops etc for breakdown. However, depending on your size and set-up, the cost to replace a computer system is quite cheap and the insurance is probably not worth it.
Machinery Breakdown - Covers breakdown to machinery that runs by a motor. Most E-Commerce businesses will have a low machinery breakdown exposure.
Manufacturing of goods and items from home (candles, gifts, baked goods, art, jewellery, clothing, promotional goods, cosmetics, pottery, soaps,) then retailing to the public.
- Run from home
- Customers to the home and/ or online business
- Stock Held At Home
High Risks -
Products Liability is a high risk for E-Commerce businesses where they manufacture the product themselves. As claims will be brought against you as the manufacturer and the retailer, it's important that you have products liability insurance.
Public Liability risk could be high for these types of businesses as they could have customers frequently buying their items. They could also attend events such as markets etc. Public Liability Insurance will protect you against third-party injury and property damage claims that you're liable for, including product liability claims.
Low Risk -
Theft -Â As theft from the home may happen, the value of your stock may be quite low, and it's not likely that all of your stock would be stolen.
Fire & Perils (cover for fire, storm, hail, flood, lightning, earthquake, power surge, landslide, cyclone etc against your contents and stock)
Electronic & Machinery Breakdown - Depending on your activities, this could be a considerable risk but for home businesses however, the equipment and machinery used may be fairly inexpensive and might outweigh the need for insurance.
Business Interruption Cover - if you are holding a lot of stock that would greatly impact your sales if they were destroyed (fire, flood, storm etc) then this cover is highly recommended to protect your profit until you return to your pre-loss sales, however, most home businesses do not hold a lot of stock and will only be slightly impacted.
Transit Cover (covers your stock whilst in transit - import, export, around Australia)
Money Cover - Most home businesses do not hold much physical cash on the premise and as such, the need for this insurance is low.
Online Professional Services from home (financial services, bookkeeping, administration services, marketing company etc)
- Run from home
- No Customers to home
- No stock held
High Risks -Â
Professional Indemnity - If you provide a professional service, whether it be from a home, or at an office, the exposure is exactly the same. Professional Indemnity will protect you for advice and recommendations given and any breach of your professional duty.
Low Risks -Â
Injury to the public (Public Liability Insurance) - you may on occasion visit clients away from your home, in a cafe for example, but apart from that, injury to third parties is extremely low.
Electronic Breakdown - the cost to replace electronic equipment if it were to break down is extremely cheap depending on your set-up, and as such the risk is low for this insurance.
Machinery breakdown - There is no machinery breakdown risk for online professionals that work from home.
Fire & Perils, Theft - Your computer set-up could be at risk of being stolen, however, you should check your home insurance policy to see if you workstation is covered to avoid having to purchase business insurance in addition.
Interruption Cover (insurance to protect your business turnover if you were unable to trade from home after a fire/peril)
Transit Cover - little to no risk as the services provided are online and not physical.
Money Cover - little to no risk as most online businesses transact completely online.
Risks that all Home Businesses have
Cyber Insurance - all businesses have a risk of a cyber attack that could result in malware, ransoms, and data breaches. A cyber insurance policy can pay for Cyber Theft, along with the IT costs associated with an attack. As our computers are the main way that we transact our business, cyber insurance is crucial to avoid any large expenses that result from a cyber attack.
What Insurance Do I Need For My Business?
The type of insurance you need for your business will vary depending on what your business activities are. For example, the insurance an office will need will be completely different to a construction company.
There are insurances that are mandatory, such as workers' compensation, and insurances that you can choose to insure for depending on your perceived level of risk such as a business package. Either way, Insurance is the best thing you can do to protect your business and its financial future.
Workers Compensation
Workers' Compensation is mandatory for any business that has employees. Workers' Compensation protects employees from the financial burden if they were to get into an accident at work or fall ill and could not work. It can pay for any medical expenses, lost income due to time off work, and compensation for their injuries. The compensation will depend on the severity of the injury. Workers' Compensation Insurance is mandatory in all states and territories so it’s important to be familiar with your local regulations before hiring employees.
Public Liability
Public Liability insurance no matter the size is a crucial insurance policy to have. It protects businesses from claims brought against them for injuries, or property damage from third parties. It is designed to protect the public from the financial implications if they were to suffer an injury as a result of the negligence of a business. It is also designed to protect the business from being financially ruined in the event an accident happens and someone was injured or someone's property was damaged. It pays for the legal, defence and compensation costs.
Business Package
There are many sections to a business package policy that can cover to protect a business.
Fire & Perils Cover for a business will protect the physical assets such as the building, contents and stock from fire, weather events, impact damage, flood, power surge etc.
Theft Cover – Theft insurance protects contents and stock from theft and attempted theft. It can also protect the rental premise from damage.
Money Cover – Money Insurance reimburses a business if they’ve suffered a theft and there was money stolen. It does not cover electronic funds.
Business Interruption – Business Interruption is designed to protect the income of a business if the trade was disrupted by events such as fire, flood, storm, machinery breakdown etc.
Machinery & Electronic Breakdown – This coverage will pay for the repairs or replacement of electronic or motorised machinery. If you have business interruption selected, your business interruption could also pay the lost income as a result of the machinery item being out of use.
General Property – General Property will cover the portal items that you take away from the premise. It can cover fire, theft, flood, and collision.
Professional Indemnity Insurance
Professional Indemnity Insurance protects businesses that provide professional services for their advice, recommendations and overall services provided.
For example, businesses that provide advice for a fee
- Accountants
- Financial Planners
- Insurance Brokers
- Any occupation where reports and certificates of compliance are provided; such as Motor Vehicle Inspection services; Building Inspection Services
Cyber Insurance
Cyber Insurance should be highly considered with the frequency and severity of cybercrime currently. It provides cover for costs associated such as
- Financial Loss that you or a third party suffer.
- Data Recovery
- Interruption & Escalated costs to the business
- Fines & Penalties
- Notification costs
Motor Vehicle Insurances
Motor vehicle insurance is not mandatory, but it’s the insurance that almost all businesses won’t go without. This is because of the high frequency, high-value claims that are a result of a car accident. Morgan Insurance Brokers can provide cover for personal vehicles, business-use vehicles, and also fleets.
Depending on the size, scale, and activities of your business, all or only a few of these insurances may be crucial to the financial well-being of your business going forward. Contact Morgan Insurance Brokers to discuss your risks and have your business insurance tailored to meet your specific needs.
