Illustration: Colin Daniel

This article was first published in the 3rd quarter 2017 edition of Personal Finance magazine.

CAPE TOWN - For many entrepreneurs, there is often a blurring of the lines between personal and business roles, and this can extend to insurance planning. It’s important to ensure that personal and business risks are clearly ring-fenced and insured under the correct insurance policy. This becomes particularly important when we look at how our work environments are evolving, with more people setting up home-based businesses.

Clayton Ellary, the commercial branch manager at Aon South Africa, says: “If you’re a ‘solo-preneur’ running a business from home, it can be tricky knowing when something should be covered under your personal building, contents and motor insurance policies or your under your business insurance policy. The definitive factor that separates a personal lines policy from a business policy is the nature of the risk involved.” 

If you assume that your homeowner’s policy will cover the risks arising from your business pursuits, you may be making a mistake. 

“While your homeowner’s policy may cover you for your office as part of the insured building, it won’t protect you against claims arising from your business pursuits. For that reason, you should obtain a separate commercial policy if your endeavour involves any kind of liability risk – and most do,” Ellary says.

“The inventory of assets alone is normally vastly different between your standard furniture contained in a home to the specialised equipment used in your business, for example. Think of the expensive equipment that a dietitian, physiotherapist or architect may require versus that of your usual household items. Or an electrician who travels with what is essentially his entire business in his vehicle or trailer. This becomes more complex if you are keeping stock for clients on your premises – you need a commercial insurance policy that is geared for fire risk, damage or theft as well as the liability risks that a business could face.” 

Liability cover to protect you from civil claims is also an important consideration for any business, regardless of size. 

“Certain professionals, such as insurance brokers and estate agents, should consider obtaining errors and omissions coverage and professional indemnity cover, and, in the case of healthcare practitioners, medical malpractice insurance, should a customer accuse them of making some sort of error, omission or not delivering on a contractual agreement. Consider what would happen if a patient leaving a physiotherapy practice, falls on the premises, suffers an injury and sues the physio for the damages?” he asks.

Consider the example of Zippy Parties. As the owner of Zippy Parties, Sally often drives to clients’ homes and other venues and shopping centres with her vehicle and trailer loaded with props, accessories and merchandise. In some instances, she sets up the day before the event, which means that her equipment and merchandise may be vulnerable to theft during the night. If anything goes wrong – say her merchandise is stolen or damaged, or worse, a child is injured on the equipment – Zippy Parties and Sally would face big financial losses or a possible negligence claim which, if the child is seriously injured, could run into millions."

So while your business may be based at home, the risks it faces are very much in the business realm. 
Another important consideration, if you’re on the board of an organisation, is that of directors’ and officers’ liability.  

“If you sit on a board or you’re part of a committee representing an entity such as a business, non-profit organisation or even the local homeowners’ association, it makes sense for the organisation to secure directors’ and officers’ liability (D&O) insurance that provides cover for liabilities that could arise from wrongdoings by directors and officers in conducting their managerial responsibilities,” Ellary says. 

Another typical “private vs business” insurance conundrum presents itself in motor vehicle cover.

“There is a distinct difference between taking a weekend road trip or transporting friends to a rugby match and regularly driving to visit job sites or earning an extra income as a taxi driver. Your personal car insurance policy will normally not cover a claim if you are transporting people or goods for remuneration, or using your vehicle to conduct your work, as plumbers and electricians often do.”

So how can an entrepreneur protect a home-based business? Start by insuring your business right away by consulting a broker who understands the risks faced by smaller commercial businesses. 

The value of a professional insurance broker comes to the fore when considering the various liability insurance aspects that could possibly impact your business. 

“A liability claim typically is unlikely to happen to a small business, but if it does, it is normally for a large sum that could spell disaster for any small operator. Likewise, losing your stock through theft or fire, or your 
important IT assets such as laptops or servers, can be a huge loss, not just financially, but reputationally too. This is why it is crucial to do a thorough needs-analysis to ensure that your business is covered for every possible scenario,” Ellary says. 

“Talk to your insurance broker today, to make sure that your personal and business insurance toes the line. You may even have items that are insured on both policies that do not need to be. A thorough needs-analysis will ensure that you are correctly covered at the inception of your policy, so that come claims time (and crunch time), there are no unforeseen surprises,” he says.

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