It’s estimated that around 19 million businesses in the U.S. are home-based. Whether you’re a writer, accountant, engineer, entrepreneur or working in a different field, running a home-based business offers many benefits.
You can save time, save money and even possibly deduct a percentage of your home operating costs when reporting business income and expenses to the IRS.
But did you know your homeowners insurance might not offer the coverage you need for your business? To make sure your business is properly protected, there are a few things you should know, including:
- What is Home-Based Business Insurance?
- Why Do You Need Home-Based Business Insurance?
- How Can You Insure Your Home-Based Business?
- What Does Home-Based Business Insurance Cover?
This article was written in May 2023 and I review it every three months.
What is Home-Based Business Insurance?
A home-based business insurance policy is meant to protect you and your property from damages, loss, and lawsuits related to your business.
I’ve written about what homeowners insurance policies cover here, but for many home-based businesses, a standard homeowners insurance policy will likely not be enough. It’s typical for homeowners insurance policies to only offer up to $2,500 of protection for your business equipment.
But simply having business equipment at home isn’t the same as running a home-based business. In fact, depending on what type of business you have, there’s a chance that relying on your homeowners insurance policy for protection can lead to your insurer cancelling your coverage. To make sure this doesn’t happen to you, let’s look at a few reasons you might need home-based business insurance instead.
Why Do You Need Home-Based Business Insurance?
Running a home-based business comes with additional risks that might not be covered by a standard homeowners insurance policy. For example, your homeowners insurance policy will not protect you from liability claims made by guests that have visited your home for business purposes. If a customer falls or a driver slips during a business delivery, you’ll need business insurance for protection.
If you’re not sure whether you really need home-based business insurance, here are a few questions to consider:
- What type of business do you run?
- Do clients and/or guests come to your home for business related reasons?
- Do you have any employees?
- Do you use technology to store business records, personal and/or financial information, or any other secure data?
You’ll also want to take stock of your business risks. This includes the risks your business might pose to your home, but also the risks your business might face. Understanding these risks can help you determine what type of home-based business coverage is best for you.
How Can You Insure Your Home-Based Business?
There are three main options to insure your home-based business. You can:
1. Get endorsements (or add-ons) to increase coverage for business property on your homeowners insurance policy. Not every insurer will offer the same options, but business equipment and business liability endorsements are the most common. These add-ons increase or add coverage for you and your work equipment against damages, loss and/or claims of bodily injury from visitors to your home.
2. Purchase a separate home-based business policy. This type of policy is also known as in-home business insurance. Like endorsements, the coverage offered varies depending on your insurer. But typically, you’ll get protection for your work equipment, business-related documents and data, and against liability claims.
A home-based business policy will typically provide more comprehensive coverage than endorsements offer. In addition to higher coverage limits, you’ll likely also get coverage for loss of income if your home is damaged and you can’t work for a while.
3. Buy a business owners policy (BOP). This type of policy provides the most comprehensive coverage. If you have employees or need higher coverage limits than a home-based business policy offers, this might be best for you.
What Does Home-Based Business Insurance Cover?
To choose the right policy for your needs, be sure you’re getting protection for all the risks your business may face. Here are four common types of coverage to consider when choosing insurance for your home-based business:
From computers to cookware, if you have more than $2,500 worth of business equipment at home, then you’ll want a policy that protects your property. Business equipment coverage is also called business property insurance and isn’t limited to equipment. Your business inventory, furniture and other business items can also be covered. Be sure you know the value of all your business property so you can choose a policy with enough coverage.
If your home is damaged, a standard homeowners insurance policy will provide you with assistance like temporary residence while your home is repaired. But you might not be able to keep your business running from a hotel. When unexpected events interrupt your business, having business interruption insurance can help you financially. This insurance is also called business income coverage and it protects you from lost income and the unexpected costs of relocating your business.
Using technology for your business can make management and operations easier, but unfortunately, it also opens your business up to additional risks. Having cyber insurance can provide protection against many risks such as data breaches, cyber-thieves, and hackers. Your coverage will depend on your insurer and the policy you select, but cyber insurance can pay for things such as the cost of credit monitoring for customers after a data breach to legal or public relations services after a hack.
There are a few types of liability insurance for business. General liability coverage is a must if you have customers or visitors to your home for your business. For example, if someone trips on the way up your stairs, general liability can protect you.
Product liability coverage might be necessary if you make or sell products. This type of coverage provides protection against claims of damages caused by something you’ve made or sold.
Professional liability coverage provides protection against claims of damages caused by your work – or lack of. If, for example, a client takes you to court for failure to deliver on a service, professional liability coverage can protect you. This type of liability insurance is also called errors and omissions (E&O) insurance.
If you’re operating a business from home, having some level of business insurance is a must.
It can be scary to think about what risks your business might face, but doing so will help you choose the best protection for your type of business.
You don’t have to overinvest in coverage immediately. For example, if your business doesn’t have costly equipment or require visitors to come to your home, endorsements might provide enough protection, “for as little as $25,” according to the Insurance Information Institute (III).
Just as we recommend reviewing your homeowners insurance coverage regularly, you should do the same for your home-based business. As it grows, you can always review your coverage and get more when it’s needed.