Insuring a home-based business: What you need to know


Today there are about 8 million business owners who operate their companies from their homes. These savvy individuals are not just startup entrepreneurs who are waiting to get enough funding or customers to move to an incubator or office space, but well established consultants, accountants, writers, engineers, website designers and more.

They have worked the numbers and determined that they can save more money and time by working from their homes. And depending how they report business income and expenses to the IRS, they may be able to deduct a percentage of their home operating and maintenance costs. Yes, even a portion of the costs to install an expensive new roof may be deductible with the right planning!

But are there any gotchas associated with starting and managing a business in your home? Yes.

In the world of gotchas, business owners are often surprised to learn that most standard homeowner’s insurance policies don’t offer the same level of insurance coverage needed by most small businesses. 

Here are a few key considerations…

Read more: 6 ways to prepare before becoming self-employed

Business equipment

Computers and general-purpose office equipment that are kept in a home might be covered by a homeowner’s insurance policy up to some relatively low limit for business-related personal property — usually about $2,500.  But not all policies offer this coverage.

Some homeowner’s policies may exclude coverage for equipment or property that is deemed more business property than personal property. Expensive video editing, lighting and camera gear for production companies could easily fall outside homeowner’s insurance coverage limits.

Loss of use

Most homeowner’s policies offer some compensation for families who have to move to a temporary residence after a fire or other “covered event.”  This sounds great but most businesses can’t easily operate out of a hotel room. If you want a fast disaster-recovery fix for events that can shut down your business, then research small business insurance options that include business-interruption insurance. 

If you rent a home or apartment, don’t assume that your landlord has any coverage for your personal or business property or maintains coverage for business interruption. A landlord may seem like the one with deeper pockets in a disaster. But in the real world, renter’s leases are full of boiler plate language that offers no protections to a renter’s personal property or livelihood.


Liability protection for visitors

Businesses that serve customers in the home may need liability coverage offered under a business policy — not a homeowner’s policy — to handle accidental onsite “trips and falls.” If you don’t allow customer visits but have employees or conduct frequent meetings with business partners or independent contractors in your home, you still might benefit from a separate small business policy.

Product liability

Most chain retailers require businesses to present proof of product liability insurance coverage before issuing purchase orders. They also know that toys, beauty and food products are especially prone to costly consumer claims and litigation. If your business is not incorporated or a Limited Liability Company to help shield your family from business liabilities, explore a small business insurance policy with extra product liability coverage.

Cyber-security coverage

There are just too many ways in which a business owner today can suffer a reputational or cash loss from malicious cyber-thieves. Most small business insurers today offer innovative services to help small business owners manage the costs and the increasingly complex state laws associated with loss of customer data.  

Final thoughts

I’m not a fan of spending precious startup cash on “nice-to-have” expenses, especially before a business achieves a comfortable level of consistent profitability and serves more than one client. However, a small business general liability policy is clearly a “must have” for entrepreneurs who are operating full-time businesses from home. 

The good news is with a little shopping, business owners can obtain a small business general liability insurance policy for about $500, possibly less for some low-risk businesses.     

To determine your insurance needs, think about what types of claims or losses are most likely to disrupt your home or your business operations. Research online and ask questions of insurance brokers in your community. You don’t have to over invest in coverage, but you should have some level of coverage. And as your business advances, be sure to pay attention to the details of your coverage once a year.

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