Ellen Roseman: Insurance choices for home-based businesses

Working from home (WFH) has its own challenges. Whenever your internet connection cuts out at a crucial moment, you are in control of getting a fix. Same task happens when your pc, printer, scanner or other hardware breaks down after the warranty has expired.

As CEO of your small business, you have to protect your workplace equipment and key documents from risks that could occur in your own home – for example flooding, fire, theft, or accidental destruction.

Do you have a good property insurance policy? Is the coverage enough for your house business? Much more important, perhaps you have told your insurance company that you might be working at home to have an indefinite period?

Cyber security is yet another thing to consider. As a WFH freelance writer since 2021, I learned about this risk firsthand when my website hosting company was hit by a ransomware attack and my blog posts (12 years' worth) suddenly vanished.

Ransomware is malicious software that infects your pc and displays messages demanding a fee – typically payable in bitcoins – for the system to work again. It has the ability to lock a pc screen or encrypt important, predetermined files with a password.

Small and medium-size companies are not immune. Cyber attacks are on the increase in every sector and in all sizes of business, says a recent report. Negotiating with hackers is usually a lost cause, since many organizations that pay a ransom don't get their files decrypted.

My website hosting company did not pay a ransom, fearing more threats in the future. Instead, it used the web archive of webpages saved over time, referred to as Wayback Machine, to restore my blog.

Still, the crisis forced me to think about cyber risk. Let's say I'd lost information that wasn't backed up properly? Let's say I'd stored confidential data with what I thought was a secure way, but was now in the hands of criminals? The outcome might have been serious and expensive.

I asked my web host if he'd considered buying cyber security insurance due to the ransomware attack last spring. I was surprised to hear his reply.

“I don't have insurance,” he explained. “Most smaller businesses don't enjoy insurance and insurance doesn't like them, either. They hire high-priced lawyers to find loopholes to state you aren't eligible for a claim.”

This helped me curious, and so i asked a few WFH entrepreneurs regarding their insurance.

Different kinds of insurance for home-based businesses

A friend who runs a tutoring business said she carries insurance to pay for the risk of accidents to children entering her home. She did not remember the insurance coverage company's name or even the annual cost.

A friend with an online Etsy crafts shop said she's likely to upgrade her property insurance. She wants to be covered for the $50,000 to $60,000 worth of jewelry supplies relaxing in inventory that may be damaged or lost while waiting to be shipped to customers.

Another friend who's a cpa pays his professional body for errors and omissions insurance. He told me that his home insurance policy covers only one office per household – a well known fact he learned when his wife hoped to start her own home based business.

Clearly, standard home insurance doesn't provide adequate coverage for those WFH businesses. You are able to pay more to improve the amount of money of coverage in key areas (for example inventory to have an online retailer), but you might run into caps and limits.

Vanessa Barassa, a spokesperson for the Insurance Bureau of Canada, a national industry group representing Canada's private insurers, has some advice for home-based entrepreneurs:

• Remember that the property insurance policy provides a small coverage limit for books, tools and instruments necessary for a business, profession, or occupation.
• Talk to your insurance representative about getting additional coverage to limit the out-of-pocket cost of a possible loss.
• Ask about adding an endorsement or extension to your home business insurance which includes cyber coverage.
• Recognize that loss or damages associated with a cyberattack or data breach of your business information will likely not be covered through your homeowner's policy or home-based business coverage.

If your company collects private data and credit card information, you may find a commercial insurance plan is best suited to protect against data breaches.

“A cyberattack isn't just inconvenient or expensive, but could be an existential threat to the organization, even a budding new home-based business,” says the IBC.

“For companies that sell products through e-commerce or maintain electronic data on their own customers, a systems breach involving these details can cripple or ruin a business.”

Consider an industrial insurance plan for the home-based business

Suppose you're ready to look beyond home insurance. If you buy a commercial insurance plan to protect your small business, what coverage do you need? What's going to it cost?

I spoke to Danish Yusuf, CEO of online insurance agent Zensurance, that allows small businesses to request an estimate 24/7 from more than 50 of Canada's leading insurance providers. The company operates across Canada, except in Quebec.

“We have 110 employees, double what we should had before the pandemic,” he says. “Most of our customers earn under $100,000 a year in revenue and pay $50 to $70 per month for insurance. The average age is over 35 and about half can be found away from big cities.”

Zensurance provided types of the annual cost of insurance for small businesses. His examples involve individuals who were inspired through the pandemic being solo entrepreneurs.

• A personal trainer who operates offline and online: $250 a year for any general and professional liability policy of $2 million.
• A person who sells goggles online, imported from China and sent to the U.S.: $800 a year for $2 million in general liability.
• A management consultant who earns revenue of $100,000 annually or less: $700 annually for $1 million in professional liability and $2 million in general liability.
• A cafe owner with the standard amount of equipment and stock: $1,300 a year for $2 million generally liability.
• A venture capital-backed software company, with under $1 million in revenue: $1,500 annually for $1 million in directors' and officers' insurance.
• A paralegal with two years of experience: $500 annually for $1 million in errors and omissions insurance.
• A nail stylist who calculates of other's salons as an independent professional: $300 a year for any $2-million errors and omissions and general liability policy.

According to Yusuf, some companies are hard to insure in a reasonable price due to higher liability claims, such as restaurants that serve liquor, sellers of baby clothes and teething toys made in China, cannabis companies operating in the U.S. (where it's outlawed federally), and snowplowing services.

I don't think these annual insurance charges are unreasonable. If I were starting a company which had the opportunity of liability claims by customers, I'd stop relying on my home insurance and start shopping for low-priced commercial coverage. Better safe than sorry.

Be wary of underinsuring your home-based business

Canada is a country of small businesses, but as much as 25% of them are underinsured or lack commercial coverage completely, based on a Deloitte Canada set of reimagining insurance and unlocking the small income opportunity.

The research was done in 2021, although not much has changed, says Chris Duvinage, Deloitte's senior manager of property and casualty insurance strategy.

“The insurance industry still doesn't see small company as a profitable market and hasn't shifted to one where it might be vastly cheaper to serve these customers,” he says.

“It's not cost-effective for brokers to invest time speaking with smaller businesses concerning the risks they face and also the kinds of coverage available – and also to do it in language they are able to understand.

“Businesses will happily go online and buy insurance whether it's done right, but no Canadian carrier has yet cracked the nut and provided seamless advice to business online.”

Dan Kelly, president and CEO from the Canadian Federation of Independent Business (CFIB), echoes the need for change in the commercial insurance industry.

“There are major affordability issues for small business owners,” says Kelly. “Business insurance charges are rising dramatically. Our members are screaming about costs and some say they aren't able to get access whatsoever. Nobody is writing policies in areas hard hit by COVID-19, such as hospitality and transportation.”

Bottom line: The entire year 2021 taught us about unexpected risks. If you're working for yourself in the home office, start researching the company risks you might face.

Talk to insurance providers, brokers and financial advisors about methods to cover the potential risks at reasonable prices. Shop around and make a price comparison. Negotiate for the best rates you can get, both whenever you buy a policy so when it comes down up for renewal.