People who run small side businesses from their homes often downplay their need for commercial insurance products because of the limited revenues their businesses bring in. The size of your profit does not necessarily represent the size of your risk exposure though. In fact, it's those small businesses with the lowest revenues and limited resources to pay out-of-pocket for damages that may most benefit from the protection afforded by commercial insurance policies.
Liabilities Know No Limits
One of the biggest concerns for any business owner is their exposure to bodily injury and personal property liabilities. For example let's say you own an Etsy shop from which you sell small homemade items such as pillows. Through this shop you sell a few handmade pillows each month to people all over the country. In all you profit about $3000 per year. It's not a lot, but it definitely helps out and is extremely rewarding.
Now, let's say that some of your pillow designs include embellishments such as buttons. One of your handmade, button-covered pillows is sold to a family with a small child and, after receiving the pillow and displaying it proudly on their sofa, the family's toddler pries a particularly loose button off the pillow and swallows it. Next comes a frantic 911 call, an ambulance ride, emergency room treatment, and a month's worth of follow-up doctor visits. The parents of the injured toddler don't care that your business only brings in $250 a month. They care that they have high medical bills due to what they see as improper construction of the pillow and they decide to sue you.
The costs of defending yourself in court and paying any subsequent claims that the court demands will be impossible to cover with your existing pillow sales. Not only that, but you may lose future sales because the parents of the injured infant can spread the word online about what they see as a design flaw in your pillow and the stress of dealing with the court case and the claim may leave you so exhausted you don't have the energy to make pillows or fulfill existing customer orders.
There are various types of coverage including product liability and commercial liability that could, if you had them, help you handle all of these expenses. The only cost is a small monthly premium that still allows you to turn a profit on your pillow-making business.
The Dangers of Working from Home
Many small and micro business owners who operate their companies out of their homes assume that their home insurance policy will cover any commercial liabilities or damages to their business property. Unfortunately, operating a business out of your home without notifying your home insurance company can result in a rescinded policy, not happily covered claims. Instead you must either secure a separate policy for your commercial property and liabilities or talk to your home insurance company about adding an endorsement for commercial contents coverage.
It's Not about Giving Up, It's about Being Prepared
If you are a small or micro business owner looking for simplicity in your home business, the example above may make you cringe and give up on your dreams of business ownership all together. But really it shouldn't. Insurance gives all business owners the underlying protection they need to confidently go after the realization of their dreams. The knowledge that you need insurance, no matter how small your business is, should encourage you because it is a solution to an exposure problem.
The lines of commercial insurance coverage that you need may vary depending on the type of business you operate. In our example, in which a business sells tangible goods online, there are different liability and property insurance coverages that should be explored. Other small businesses such as those conducting social media for companies could benefit from cyber risk liability insurance, equipment breakdown insurance and property insurance to cover catastrophes that damage their computer equipment and furniture. There is no single policy that is right for every business. You must work with an insurance agent who can help you find all of the individual risks faced by your type of business and the way you operate it, and then cover it from there.
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