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Cheap small business insurance helps a start-up survive

There is a common myth among people who run a business out of their garage — that their homeowner policy will cover all problems. Unfortunately, almost every domestic policy excludes liability for commercial risks. Worse, if you fail to tell your insurance company about the change of use, this gives them the right in law to cancel the policy and not pay out a cent on any claim. This will be so even if what happened would normally have been covered by your policy. It all comes down to a simple test.

The insurance company relies on you to describe all the risks. If what you hide represents something significant that changes the nature of the risk, every insurer will cancel and you have no right to complain. Since the recession hit, more people have been using their homes as offices and business premises. For some, it is a way of earning a few extra dollars to top up what they earn. For others forced into unemployment, there is no choice. It is either start some kind of business or starve when the benefit runs out.

The opportunities for working at home have significantly improved thanks to the internet. The simplest approach is to trade through eBay using a drop shipping deal, or look for affiliate promotion work. Anything that earns a few dollars using the PC with no real capital outlay.

But what happens if your PC breaks down or is infected by malware? You may be cut off from any chance of continuing to earn until your machine is repaired or you buy a new one. And, even if you have the money, have you lost all your records? Although business expenses like repair and replacement costs can be set off against profits for tax purposes, what do you do if there are no back-up copies of invoices and work schedules? In all this, size means nothing. Without a disaster plan and no back-ups, you look unprofessional to your customers. Your reputation just died.

Cheap small business insurance is vital in the early stages of a start-up. It gives you some security when your capital is limited and you cannot afford to dip into your own pockets to deal with emergencies. So what do you need? To protect yourself against third party claims, you need a general liability policy. If you make something for sale, you need product responsibiity coverage. Then you pick-and-mix from: business interruption, key person, legal insurance, internet business insurance, worker’s compensation, and so on. Whatever you decide is a good use of your limited cash resources must also fit with the homeowner insurance. In principle, you should not be able to claim twice. So, for example, if both policies have flooding coverage, ensure you claim separately for home contents and business stock. If there is any doubt, discuss the problem with the insurer(s) before buying the policies or before making a claim. Lack of openness can be used as an excuse to cancel one or both policies.

Finding yourself with losses and no valid policy is very bad news for your business future. Keeping your costs as low as possible in the first years is essential. Cheap small business insurance gets you started. Remember, you want what is cheap to pay out for most of the standard risks for your type of business. That way, if you are forced to claim, the cheap policy is a good value policy.

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