Drawing the line between business and personal insurance for your home-based business 

For many entrepreneurs, there is often a blurring of the lines between personal and business roles and this can even extend into insurance planning.  It’s important to ensure that personal and business risks are clearly ring-fenced and insured under the correct insurance policy.  This becomes especially important when you look at how our work environments are evolving, with more people setting up home-based businesses.

This is according to Clayton Ellary, Commercial Branch Manager at Aon South Africa. “If you’re a solopreneur running a practice from home, it can be tricky knowing when something should be covered under your personal building, contents and motor insurance policy or your commercial business insurance.  The definitive factor that separates a personal lines policy from a business policy is the nature of the risk involved.” 

“Anyone  who  assumes  that  their  home-owner  insurance  policy  will  cover  the risks arising from their business pursuits may  be  making  a mistake.  While your home owners policy may cover you for your office as part of the insured building, it won’t protect you against claims arising from your business pursuits. For that reason, you should obtain a separate commercial policy if your endeavour involves any kind of liability risk – and most do,” says Clayton.

“The inventory of assets alone is normally vastly different between your standard furniture contained in a home to the specialised equipment used in your business, for example. Think of the expensive equipment that a dietician, physiotherapist or architect may require versus that of your usual household items as an example.  Or an electrician who travels with what is essentially his entire business in his vehicle or trailer.  This becomes more complex if you are ordering and keeping stock for clients on your premises or specialised materials and instruments that are needed to perform your work – you need a commercial insurance policy that is geared for fire risk, damage or theft as well as the liability risks that a business could face,” explains Clayton. 

Liability is another important consideration for any business regardless of size.  “Certain professionals, such as insurance brokers and estate agents as an example, should consider obtaining errors and omissions coverage and professional indemnity cover, and in the case of healthcare practitioners, medical malpractice insurance, should a customer accuse them of making some sort of error, omission or not delivering on a contractual agreement.  Consider what would happen if a patient leaving a physiotherapy practice falls on the premises, suffers an injury and sues the physio for the damages?” he asks.

Consider the example of Zippy Parties. As the owner of Zippy Parties, Sally often drives to client’s homes, external venues and shopping centres with her vehicle and trailer loaded with props, accessories and merchandise.  In some instances, she often sets up overnight which means that her merchandise may be unattended the night before an event takes place.  If anything goes wrong – say her merchandise is stolen or damaged, or worse, a child falls over her display and is injured - Zippy Parties and Sally would face big financial losses, and liability.  

While your business may be based at home, the risks it faces are very much in the business realm. 

Another important consideration is that of director and officers liability.  “If you sit on a board or you’re part of any committee representing an entity such as a business, non-profit organisation or even the local home owners association, then it makes sense to secure directors and officers liability (D&O) insurance which provides cover for liabilities that could arise from wrongdoings by directors and officers in conducting their managerial responsibilities,” adds Clayton. 

Another typical ‘private vs business’ insurance conundrum presents itself in motor insurance cover.  “There is a distinct difference between taking a weekend road trip or transporting friends to a rugby match and that of regularly driving to visit job sites or earning an extra income as a taxi driver.  Your personal car insurance will normally not respond to a claim when you are transporting people or goods for remuneration, or using your vehicle to conduct your work, as the likes of plumbers and electricians often do.

So how can an entrepreneur protect a home-based business? Start by insuring your business right away by consulting with a broker who understands the risks faced by smaller commercial businesses.   The value of a professional insurance broker comes to the fore when considering the various liability insurance aspects that could possibly impact your business.  “A liability claim typically is less likely to happen to a small business, but when it does, it is normally for a large sum that could spell disaster for any small operator. Likewise, losing your stock through theft or fire, or your important IT assets such as laptops or servers can be a huge loss, not just financially, but reputationally too. This is why it is crucial to do a thorough needs-analysis to ensure that your business is covered for every possible scenario,” says Clayton. 

“Talk to your insurance broker today, to make sure that your personal and business insurance toes the line.  You could even have items that are insured on both policies that do not need to be.  A thorough needs-analysis will ensure that you are correctly covered at the inception of your policy, so that come claims time (and crunch time), there are no unforeseen surprises,” concludes Clayton.