Multi-level marketing (MLM) is a business model that has recently skyrocketed in popularity. MLMs have even been deemed the answer to financial independence for those who can't yet afford to retire. If you're interested in developing an alternative stream of income by engaging in direct sales of jewelry, cosmetics, home goods, or other products, you're probably eager to begin and may have already ordered your starter package. However, despite its relatively low barriers to entry, an MLM is still a business -- and you'll need to consider whether your current home and auto insurance coverage will fully compensate you for any theft, damage, or other losses you suffer while performing business-related activities. Read on to learn more about the potential types of insurance coverage you may need before officially launching your business.
How can running an MLM out of your home impact your insurance coverage?
When you first purchase an auto insurance policy, you're required to provide a great deal of information on yourself and your projected use of your vehicle. Those who have long daily commutes generally have higher insurance rates than those who indicate they use their vehicles only for pleasure; and those who transport cargo or passengers may be subject to higher rates as well.
It can be tempting to downplay the use of your vehicle as a means of keeping your insurance premiums low. However, doing so could prevent you from receiving coverage for loss or damage if you were engaging in an activity not specifically contemplated by your insurance policy. For example, if you were rear-ended while transporting product and your cargo was irreparably damaged, your auto insurance may compensate you only for the damage to your vehicle and any medical expenses -- not the cost of your lost product.
By that same token, if your product is damaged after your home is burglarized or suffers fire, flood, or another natural disaster, you're unlikely to receive extra compensation for this loss unless you specifically added these products to your policy through a coverage rider. While your homeowners insurance will cover damage to your home's structure or the loss or theft of personal items, from furniture to electronics, business products are often excluded from homeowners coverage.
What types of coverage do you need to best protect your MLM business?
Before you officially launch your MLM business, it's important to speak to two people -- an insurance agent and a tax accountant. Your insurance agent will be able to go through your various coverage options to help protect you against all possible scenarios. Depending upon the specific type of product you're selling, you may be able to get by with only small changes to your current coverage, especially if you don't keep much product on hand and only host parties at others' homes.
In other cases, commercial insurance coverage may provide you with the level of protection you need. If you regularly use your vehicle to transport customers, or host product parties at your home, you'll likely benefit from the higher payout levels and more personalized coverage available through a commercial policy, rather than trying to tweak your personal policies to fit a commercial purpose.
Finally, visiting a tax accountant before or shortly after you launch your MLM business will help you find out whether any additional insurance coverage is an expense that's deductible against your income taxes. You may be able to use the cost of coverage as a business expense to offset any profit, lowering your overall tax rate. Because of this, spending money on a higher level of insurance coverage can often be a net gain.