Home Business Insurance: How To Protect Your Home-Based Business
Do you need home-based business insurance? Learn what home business insurance is, how it's different from homeowners insurance, and why you might need this coverage when you work from home.
Home business insurance might seem unnecessary. After all, when your workplace is inside your home, you might think you’re already covered by your homeowners or renters insurance policy.
That’s a common mistake and potentially a costly one. With more than 30 million US home businesses in operation, it’s important to understand the difference between personal insurance and business insurance.
Let’s start with this fact: Most home insurance policies are designed to protect the dwelling and its contents, not a business.
If you run a small business out of your home, your homeowners or renters’ policy most likely does not deliver the protection your business needs. In fact, if you’re running a business from home and you haven’t informed your insurer, your business activities could actually nullify parts of your insurance coverage.
Fortunately, you have options. Read on to see how to prepare your home-based business against risks.
Table of Contents
What is Home Business Insurance?
Home-based business insurance is a set of policies that self-employed professionals and entrepreneurs should consider. This type of coverage specifically protects your business assets, which likely are not covered under your homeowners or renters’ policy.
Specifically, home business insurance covers technology, files, and professional equipment. Your coverage can be written to include liability coverage and other specific types of coverage.
Remember that if you’re operating a home-based business without letting your insurance company know that, your omission may invalidate parts of your coverage. And you’ll likely have to pay out of pocket for property damage, lawsuits, cybersecurity breaches, and personal injuries to anyone visiting your home for business purposes.
Homeowners Insurance VS Home Business Insurance
Most small business owners don’t think about insuring their businesses until an accident or disaster has already occurred. Don’t let insurance be an afterthought. When you work from home, you should take steps to protect your business with home business insurance the same way you protect your home with homeowners coverage.
To understand the differences between these two types of insurance, start with an understanding of what a home insurance policy covers. While every individual policy has slight differences, most homeowners’ and renters’ policies have similar cores.
What Homeowners Insurance Does & Does Not Cover
Homeowners insurance protects your house and your physical property from disaster and destruction. Most policies protect you against damages from fire, windstorms, vandalism, theft, and other disasters.
Notable exceptions to the most basic homeowners plans are earthquakes, flood protection, and sinkholes. These must be added as additional endorsements to any plan.
A homeowners policy covers losses suffered by anyone living under your roof. (While family members typically are included automatically, in some cases, you may have to specifically name non-related individuals to your policy to extend protections to them.)
This type of coverage includes protection against property losses due to theft, fire, vandalism, some types of water damage, windstorms, and damage to the physical structure following these types of events. Some types of natural disasters, such as flooding, earthquakes, and pest damage, are not covered.
Important: Your homeowner’s insurance policy may cover up to $2,500 of business property stored inside your home. Without specific home-based business insurance coverage, your insurance likely not cover more than that.
Furthermore, if you’re operating a home-based business and do not inform your insurance provider, you may invalidate parts of your insurance coverage, including any personal liability protections.
What Home Business Insurance Covers
Home-based business insurance extends your homeowner’s protections to cover your business property. This can include office equipment, technology, and files. It can also help cover the costs of any legal claims made against your business
While it’s true that basic homeowners insurance might protect some business property stored in your home, the limit typically is $2,500. If the value of your business-related equipment and property falls under that limit, you might not need home-business insurance. A homeowners policy does not include enough coverage for businesses with more than $2,500 of equipment that could be seriously affected by property damage.
Who Needs Home Business Insurance Coverage?
Anyone running a home-based business should at least consider buying home office coverage. Specifically, anyone who meets the following conditions could benefit from home business insurance:
- Clients, vendors, or professional advisors visit your home
- You keep business supplies in your home
- You store business inventory at home
- Employees work in or visit your home
- Customer or employee records are stored on a computer or in files at your home
- You drive places to meet customers or transport inventory to job sites
- Damage to your physical structure would limit your ability to work
The bottom line: It’s not safe to rely on your homeowner’s insurance to cover your business property and assets in the case of an emergency, accident, or disaster. The cost of adding home-based business insurance will seem well worth the cost, especially if your home is in a disaster-prone area.
Common Types Of Home Business Insurance Coverage
Home business insurance is not a single policy but a collection of commercial coverage that you can combine as needed to create your personalized business protection package. Many insurance companies (like The Hartford, Nationwide, Hiscox, Progressive, and State Farm, to name a few) offer commercial coverage that can be designed for home-based businesses.
You may find a prepackaged, customizable home-based business insurance plan that bundles some of the most common types of insurance for freelancers, sole proprietors, independent contractors, and other home-office business owners. Each insurer’s plan and policy is different, so check with providers for a list of what their current home-based business insurance covers.
Here are the most common business insurance “building block” policies you can use to create your ideal home-based business insurance coverage:
- General Liability Insurance: This type of insurance guards your business if a client slips and falls or if someone sues you. General liability insurance commonly includes coverage for bodily injury, property damage, personal injury to a customer (including slander or libel), and false advertisement.
- Commercial Property Insurance: The best commercial property insurance coverage protects the value of your home office and the business equipment and property stored at your dwelling. It can also cover other people’s property while it’s in your care. Property damage due to theft also falls into this policy.
- Business Interruption Service: If your business needs to close its doors due to a disaster, natural or otherwise, business interruption coverage can repay the costs of lost revenue and business expenses accrued during the interruption. For example, if your home catches fire, property insurance will help you repair the damage. If you have to close your business for a few weeks while your house is restored, business interruption service will help offset your financial loss while you’re unable to work.
- Professional Liability: Professional liability insurance (commonly referred to as errors and omissions or E&O) covers the cost of defending your company in a lawsuit where the claim is that your business caused a financial loss for a client (an error) or did not perform a service as required (an omission). This type of insurance may be required for medical and legal businesses. If you give advice to clients, professional liability insurance is important.
- Commercial Auto Insurance: If you drive a vehicle as part of your business, consider commercial auto insurance. Your personal car insurance policy may not cover you while you’re using the vehicle strictly for work purposes.
- Cybersecurity Insurance: If you handle sensitive financial or personal information, you need cybersecurity insurance. It protects your business from the financial repercussions of a data breach or cyber attack.
Your insurance provider may recommend additional types of business insurance in addition to the most common types of coverage discussed here. You may also be offered a businessowners policy or BOP. This is a combination of common policy types, most often general liability and commercial insurance, offered at a discount.
Finding The Best Insurance For Your Home-Based Business
You’ve decided to insure your home-based business. Great! If anything happens to your home, to your supplies stored away from home, or to the equipment and technology you need to run your business, your decision means you won’t become one of the 25% of businesses that, according to FEMA, do not reopen after a disaster strikes.
Take these steps to get business insurance:
- Assess your risks and identify the coverage you need.
- Gather business documents and basic information such as the square footage of your office space, your annual income, and the value of any equipment you’d like insured.
- Comparison shop and gather quotes. We suggest you start with our list of the best insurance for small businesses. You can request free quotes from as many providers as you’d like, comparing costs and coverage until you find the right insurance company for your needs.
- Make your purchase.
How much does business insurance cost? The answer is simple: It depends. The size of your business and the endorsements you might add will determine the amount you pay. A small home-based business could pay as little as $15/month for the peace of mind home business insurance delivers. You’ll need to ask for a personalized price quote to determine what you can expect to pay for business insurance.
Remember that without home business insurance, you could lose your work equipment and furnishings, your computer, your inventory, and all your business records, with no financial assistance in replacing what you’ve lost. Given that, even if the cost seems out of reach, ask yourself this question: “How can I afford not to buy home business insurance?”