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Home-based businesses should check insurance policy to make sure they're covered


CALGARY — When Ana Maria Moreno decided to leave her career in social work to start a home-based business last year, she found herself facing a daunting to-do list that included everything from logo design to marketing strategy to customer outreach.

The Calgary woman — who runs her business out of her own kitchen, making and selling empanadas and other traditional foods from her native Colombia — acknowledges checking her insurance policy was the farthest thing from her mind.

"I didn't think about it. I had all these people telling me I need to advertise, I need a logo, I should work on a trademark. It was a lot," Mereno said. "I was just busy cooking food. I definitely didn't think of everything."

There are thousands of home-based businesses in Canada, running the gamut from hair salons to consulting firms to daycares — many run by first-time business owners.

Experts say new business owners should be aware that the typical home insurance policy offers only a small coverage limit for books, tools and instruments necessary for a business or profession. But it's easy for entrepreneurs to get so caught up in the day-to-day demands of their new enterprise that they never even think about insurance, said Patricia Sheridan, Toronto-based director at insurance brokerage Burns & Wilcox.

"We see it a lot. I think a lot of the time it just does not occur to them," Sheridan said. "It's typically not the first thing on people's minds when they're starting up a business."

Not every home-based business operator will require specialized insurance coverage. Depending on the type of business, home-based business operators may or may not require a separate business insurance policy or an extension to their existing homeowners' policy. 

But it's worth a phone call to find ask, Sheridan said. The last thing any business operator wants is to find out too late that their homeowners' policy doesn't allow for their specific type of business activity on the premises.

"The implications are that if they don’t have any other coverage for their business, and they think they’re just covered under their homeowners’ policy, their homeowners’ policy might cancel them if they find out about it," Sheridan said. "Or if there is a claim they might not cover it."

Anne Marie Thomas, director of consumer and industry relations with the Insurance Bureau of Canada, said individual business insurance needs vary widely.

"If you’re a one-person operation knitting tuques for babies, then the liability risk for the business is minimal. It's you and some knitting needles and some wool," she said. "But if you’re having a business where you’re having clients coming in and out of your home, that’s an increased liability risk for the insurance company.”

One scenario that should be considered by every home-based business operator include the possibility of a client falling and injuring themselves walking up the steps to the home. Another is the risk of being sued because of a problem with a product or service provided by the business. Personal liability on a home insurance policy wouldn't cover these situations, but commercial liability insurance would.

Some home-based entrepreneurs may also have thousands of dollars worth of products or inventory sitting in their basement. That's worth talking to your insurance company about, Thomas said.

 Any business that involves building or manufacturing something within the confines of a home could also present liability concerns, Thomas added.

"To go to an extreme, if you’re building firecrackers in your home, that’s something where an insurance company is probably going to say, ‘I don’t think so,' ” she said.

Every business and every insurance policy is unique, so that's why it's important for new entrepreneurs to talk to their brokers and be up-front about their specific situation and needs. 

Thomas recommends home-based business operators touch base with their insurance representatives as soon as the business is launched, and that they keep in touch regularly as the business grows and evolves. Having a comprehensive risk management plan in place doesn't have to be a complicated process, and can provide necessary peace of mind, she said.

“With insurance, it’s better to have it and not need it, then to need it and not have it,” she said.

This report by The Canadian Press was first published Dec. 2, 2021.

Amanda Stephenson, The Canadian Press

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