Do you operate a business out of your home? If the answer is yes, you have a lot of company. According to Small Business Administration (SBA) data, there are approximately 16 million home-based businesses in the United States.
While many home businesses can be very small, they face the same types of risks as larger businesses, such as fire damage to property, lawsuits, and auto accidents. To protect themselves from losses, most will need property and liability insurance. Property insurance will protect your company from financial losses caused by damage to equipment, machinery, and other property your business owns or rents. Liability insurance, meanwhile, will cover claims against your business by customers and other third parties for bodily injury or property damage.
Below, we’ll explore what types of insurance may best fit your home-based business.
- Even if it’s very small, a home-based business has many of the same risks as larger companies.
- Most home-based businesses can secure the coverages they need under a homeowners endorsement, an in-home business policy, or a business owner’s policy.
- Don’t rely on your homeowners policy to insure your business unless your insurer confirms it’s covered.
- You can buy insurance for your home-based business directly from an insurer, through your independent agent, or through an online agency.
Types of Home-Based Business Insurance
If you own a home-based business and are looking for insurance, you generally have three main options to choose from: an endorsement to your homeowners policy, an in-home business policy, and a business owner’s policy (BOP).
Homeowners Policy Endorsement
One of the most affordable ways to insure your home-based business is via an endorsement added to your homeowners policy. An endorsement may increase the limit on covered business equipment (which is typically $2,500) to $5,000. It may also increase the limit on your liability coverage. Depending on the coverages you purchase, a business endorsement may cost as little as $20 per year. Note that many insurers will provide a business homeowners endorsement only to very small businesses (those with $5,000 or less in annual revenue).
You shouldn’t rely on your homeowners insurance to cover your business without checking with your insurer. Many homeowners policies contain business-related exclusions.
In-Home Business Policy
An in-home business policy provides more coverage than a homeowners endorsement but less than a BOP. It may cost less than $300 per year. Policies typically include commercial coverages such as general liability, commercial property, loss of income (business interruption), loss of valuable documents, accounts receivable, and off-site use of equipment.
Business Owner’s Policy
If a homeowners endorsement or in-home business policy isn’t available or doesn’t provide enough coverage, you should consider purchasing a business owner’s policy. A BOP is a package policy designed for small businesses, and includes commercial property and general liability coverages. The property section covers:
- Office furniture
- Other property your business owns or rents
The liability section covers third-party claims against your business for bodily injury, property damage, or personal and advertising injury. General liability insurance covers claims that arise from slip-and-fall incidents, job-site accidents, faulty products you’ve made or sold, or work you’ve completed.
BOPs vary from one insurer to another but most are highly customizable. Optional coverage may include cyber liability, contractors equipment, and hired and non-owned auto liability.
What Insurance Does Your Home-Based Business Need?
The types of insurance your business needs depends on your industry and the nature of your operations. The following questions can help you narrow your choices:
- Do customers, vendors, or other business associates come to your home? Do you go to their place of business? If the answer to either question is yes, you need general liability insurance.
- Does your business depend on machinery, equipment, or other valuable property that could be difficult or expensive to replace? If so, you may need business property insurance.
- Do you employ workers? In many states, you’re obligated to purchase workers compensation insurance if you employ even one worker.
- Do you have specialized training to provide advice, do consulting work, or provide health-related services? If so, you may need professional liability (also called errors and omissions) insurance.
- Do you own a vehicle that’s registered to your business? Do you own a truck that’s bigger than a small pickup or van? If the answer is yes, you may need commercial auto insurance.
While most insurance coverages are optional, workers' comp and auto liability are mandatory in many states. Businesses that fail to buy coverage may be fined.
How To Get Home-Based Business Insurance
If you’ve just started a home-based business and are looking for insurance, a logical place to start is your homeowners insurer. An endorsement to an existing homeowners or renters policy may provide enough coverage for a very small business. If your homeowners insurer won’t provide an endorsement, it may offer an in-home policy or a BOP.
If the insurance you need isn’t available from your homeowners insurer, you’ll need to look elsewhere. Some insurers (including Progressive, Hiscox, and Next Insurance) sell policies directly to businesses. You can obtain a quote online by completing an application on the insurer’s website. Other insurers sell policies through agents or brokers. Examples are Travelers and Chubb, which use independent agents; and State Farm, which uses captive agents. You can find an agent at the insurer’s website.
It’s a good idea to shop around before buying a policy. An independent agent can solicit quotes on your behalf from several insurers. You can also contact an agent directly or fill out an application at an online agency such as Insureon or CoverHound.
Extra Coverages To Consider
A homeowners endorsement, in-home policy, or BOP may not provide all the coverages your business needs. Depending on the nature and size of your operation, you may need one or more of the following:
- Workers’ compensation: Many states require businesses to purchase workers’ compensation insurance if they employ even one worker. Be sure you understand the requirements in your state before you hire any employees.
- Business auto insurance: If you use autos in your business, don’t assume your personal auto policy will provide all the coverage you need. Check with your insurer to be sure. You will probably need commercial auto insurance if you use trucks larger than a pickup or if vehicles are registered in the name of your business.
- Professional liability insurance: You should consider buying professional liability (also called errors and omissions) insurance if you give advice or provide health care or consulting services. Examples of businesses that need professional liability are computer consultants, engineers, architects, accountants, yoga instructors, and massage therapists.
Frequently Asked Questions (FAQs)
How much does home-based business insurance usually cost?
Small businesses pay a median premium of about $500 annually for general liability insurance, but low-risk home businesses can expect to pay less. A general home-based business insurance policy, such as a business owner’s policy, can typically range from approximately $200-$500 a year.
What types of home-based businesses will have the lowest insurance rates?
A business that’s low-risk, owns little or no property, and has no previous claims may pay the lowest insurance rates. Other factors that may come into play include business size and industry. Note, however, that most homeowners insurance policies exclude business liabilities.