Running an online business can free you from some of the burdens of operating a traditional brick and mortar business, such as rent, employee wages, and structural upkeep. However, some expenses can’t be avoided – one of those being business insurance. Many online business owners think they can avoid purchasing business insurance since they don’t have a physical storefront. Or, they assume that since their homeowners insurance includes liability insurance that they are already covered. However, both of these assumptions are wrong and can lead to major issues for an online business owner in the event of a claim.
Homeowners insurance policies typically exclude business activities from coverage. In a standard homeowners policy, equipment that you use in a business is included in your contents coverage but typically only up to $2,500 – total. The online retailer can meet that limit pretty easily; the value of any inventory kept on the premises, computers, the camera you use to take photos for your website, would quickly exceed that $2,500 limit.
It could get worse. If the equipment is off your premises when it is damaged, lost or stolen – maybe the laptop you use for the business is taken from your car when you're out buying materials for the venture – the coverage limit can drop to $250, depending on your policy.
But an even bigger risk is that your home insurance policy won't offer any liability coverage. That might not initially seem like such a big deal. Since you're running an online business, you won't run the risk of a customer sustaining an injury on your property that would put you on the hook for medical costs, rehabilitation, lost wages, and maybe even pain and suffering – the risks faced by a typical business. However, there still could be big risks for your online venture, regardless of how small it is, when it comes to copyright infringement, defamation and violation of privacy. These are all things that could land you in court and needing liability coverage.
Could it happen to you?
Those are some big liability risks, you say, but could they really happen? Absolutely. Let's use the example of the custom jewelry maker selling their jewelry online.
Suppose a competitor claims you stole his or her design for one of your pieces and files a lawsuit. It will cost you money – and time – to defend yourself in this case. Even if you win, you could have a large tab for legal expenses, and you'll have spent much time away from promoting and operating your business.
Suppose a customer posts a comment on your website about that same competitor and claims his products are inferior – maybe even made with lead or something else dangerous. You didn't make the claim, but you could be responsible for it since it's on your website if the competitor files a defamation lawsuit.
There are other problems as well. Suppose your customer list, complete with credit card numbers, is compromised. Your business could potentially face serious legal problems that could run into the thousands for each customer whose information was stolen.
What's a small online business to do?
Remember, if you are sued, your business isn't the only thing at stake. Your assets, including your house, could be at risk.
There are several options you could take to protect yourself. Some home insurance carriers offer expanded business contents coverage. You could increase coverage to $5,000 or even more. That could be the answer for some online ventures.
Other insurance providers offer separate home-based business coverage. You also could opt for data breach protection and other types of liability coverage. Premiums for business insurance vary widely among providers, according to the Center for Internet Security, so get quotes from multiple providers. That way you'll have a better chance at finding the perfect policy for your online business.
This Straight North Contributor is Carrie Van Brunt-Wiley, Editor of the blog at homeinsurance.com.