Insuring your business if you're based at home

Many small business owners are setting up their business from home. Despite the benefits, there are risks attached so it's important to have insurance cover
Cake stall Lacock village Fair
Whatever your business, if you're running it from home, you should consider specialised insurance. Photograph: Mr Standfast / Alamy/Alamy

Whether you're baking cakes to sell at events, trading products online which you stock in your private property or using the spare bedroom as a makeshift office, there are a number of things to consider when running your business from home.

One of the issues sometimes overlooked by small business owners - especially in the early days - is insurance. Your home insurance is unlikely to cover any losses which relate to the business, meaning that your finances could be thrown into turmoil from one day to the next.

Jazz Gakhal, head of Direct Line for Business, explains the potential pitfalls of being uninsured: "If there were a storm, flood, fire or any other insured peril, a home insurance policy may provide cover for any personal belongings but not necessarily any relating to the business."

Aside from insuring against these risks, there are precautions which can be taken to try and avoid these setbacks, explains Jazz. "For example, if you've invested quite a bit of money in a laptop, printers, photocopiers or any other home office equipment, once you've unwrapped it don't leave the boxes outside. It's a walking advertisement for anyone who walks past the house."

If the idea of your home flooding, being caught in a fire or being robbed sounds far-fetched, it's still worth looking into what other areas which a home business insurance package can help with. If you're selling, distributing or manufacturing a product, you may consider taking out product liability insurance, which will cover you if that product were to cause loss or damage to a member of the public, for example if a consumer sustains an injury despite using the product as advised, or if a catering company were to give a wedding reception party food poisoning.

Another very common type of insurance, crucial for small business owners, is public liability. This covers you if you have people visiting your premises for any reason. Even if they were to trip and fall on the doorstep, you could still be liable.

Jazz explains how these types of insurance work: "Public liability provides cover for you if a customer was visiting your premises and sustained an injury as a result if your negligence, for example tripping on some loose carpet. If you were visiting a customer's premises and caused damage there, such spilling coffee on a customer's computer, the insurance would provide some cover for that too. "

And even if you think you're willing to take your chances, some circumstances may legally require you to take out insurance, such as employing staff. Employers' liability cover is not always a requirement, but it's important to find out. Jazz explains that this type of insurance would provide you with cover if your employee was injured during work.

"And if the worst happens and your business suffers an insurable loss which is covered under your policy, business interruption cover can provide additional peace of mind. This cover is designed to protect your income whilst you get back on your feet. This is especially important when the income from your home business is an important part of the household cashflow. There are some technicalities to the cover, it's a loss of gross profit section so any savings that your business is making, such as not having to purchase materials, will be taken into account but at the end of the day, any profit you have been making would be covered," says Jazz.

Starting up is tough for small businesses, and often running a business from home is a way of keeping your costs down, so these additional expenses can be hard to come to terms with, but the peace of mind which comes with having adequate insurance is worth the extra expense, and you needn't think the cost will be too high.

"When a small business owner hears the word 'insurance', there's an automatic assumption that it's expensive,"says Jazz. "But, depending on the business, you could purchase insurance for £60 or £70 and that premium could be spread over 12 months so that there's no interest charge and it's not as expensive as people would assume."

When you consider taking out insurance, it's important to consider the severity of the potential claims, rather than the frequency, explains Jazz. "Liability claims can reach tens or hundreds of thousands of pounds, so as a small business owner, would you have the money to compensate the individual? It may be that the actual stock and contents amounts to a figure you could replace but there are certain types of claims which unless your business has reached a large size, you wouldn't be able to cover."

Insurance can seem like a minefield of information, but you can find out the basics of what's on offer by checking out Direct Line's website. Jazz advised small businesses to go to, where they can find more in-depth explanations of the different types of cover and the number to call if you'd like to speak to a specialist team.

Content commissioned by Guardian Professional on behalf of Direct Line for Business

Direct Line for Business is underwritten by UK Insurance Ltd

Quote of £53 achieved by 40% of customers between October 2012 and March 2013


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