Home Based Business Insurance Explained

According to the Small Business Administration, there are more than 33 million small businesses in the United States, and about half of them are home-based. This includes all types of businesses such as accountants, artists, caterers, cleaning services, dog walkers, freelance writers, personal trainers, translators and tutors.

Although starting a home business is an exciting endeavor, new entrepreneurs may be unaware of the risks involved. You need the right type of home-based business insurance to help protect your business from financial disaster.

What is Home Based Business Insurance?

When you operate a company out of your residence or on property, home-based business insurance covers property damage, business-related injuries (such as a client who falls in your office), employee injuries and lawsuits. can pay for

While some entrepreneurs rely on their homeowners insurance policies, these policies may not be enough at all:

• A standard home insurance policy only covers business property up to $2,500. So if you lose more than that in a house fire, for example, your compensation is limited to $2,500. For example, if you are selling clothes in a home business and your inventory is destroyed by fire, you may not have enough coverage under your home insurance policy.
• A home insurance policy typically excludes coverage for “other structures” that are used for business purposes, such as a detached garage where you operate a business.
• Standard home insurance has a limit of $500 on business property that is away from residential premises. So if you’re using an expensive video camera away from home, coverage is limited.

You can get better home-based business insurance by endorsing your homeowners insurance policy or as a separate small business insurance policy. State Farm, for example, offers both types.

Types of home businesses that may require insurance

While you may assume that insurance isn’t necessary for your particular business, here are a few examples of businesses that may need home-based business insurance.

• Accountants and tax preparers
• Web design firms
• Photographers
• Selling goods online
• Caterers and food sales

How to Buy Home Based Business Insurance

An endorsement to your home insurance policy will add additional coverage for small operations outside the home. But larger businesses or professions that require specialized coverage may require a stand-alone business insurance policy.

Add an endorsement to your homeowners insurance policy.

Homeowners insurance companies typically offer endorsements that you can add to your homeowner’s policy to get more business coverage.

According to the Insurance Information Institute, with a standard home-based business endorsement, it’s possible to reduce your standard policy limits for business property by $2,500 to $5,000 per year by $20. This would be good for a very small business with annual sales of around $5,000 or less.

You may be able to purchase an endorsement specific to your business needs, such as The Hanover’s Permitted Incised Occupancies. This coverage can protect home business inventory.

Buy a standalone business insurance policy.

Stand-alone business insurance policies can offer stronger coverage and higher coverage limits. This type of policy may provide better coverage limits for liability than business equipment and general home insurance policy endorsements.

For example, a business owners policy (BOP) combines coverage for business property and liability.

Standalone business insurance policies are good for businesses that have inbound and outbound visitors. They’re also better than homeowner’s endorsements if you have a lot of business property to insure.

Types of Home Based Business Coverage

If you’re running a home-based business, a great way to get coverage is with a business owners policy (BOP). A BOP bundles together three main types of coverage: general liability insurance, commercial property insurance and business interruption insurance. Buying a BOP is usually cheaper than buying each policy separately and you can add additional coverage types as needed.

Here are some common types of small business insurance to consider.

General liability insurance

A general liability insurance policy covers accidental injuries and property damage caused to others by your business operations. For example, if you run a painting company out of your home and accidentally spill paint on your client’s furniture, your general liability will be to pay to repair or replace the furniture. It also covers your legal fees, judgments and settlements if you are sued for an accident.

General liability insurance also covers other types of issues, such as copyright infringement claims, reputational damage and advertising injury.

Commercial property insurance

Commercial property insurance covers your business property if it is stolen, lost or damaged due to an issue covered by your policy, such as a fire. Commercial property insurance is also called “business property insurance.”

Business interruption insurance

If you are forced to close your business due to an issue covered by your policy (such as fire), business interruption insurance covers expenses such as lost income if you have to temporarily move to a new location. Covers payroll and relocation expenses. Business interruption insurance is also known as “business income insurance”.

Commercial auto insurance

If you use a car for work purposes, such as delivering product or meeting with clients, you’ll need commercial auto insurance. Your personal car insurance policy will not cover work-related accidents.

Professional liability insurance

Professional liability insurance covers claims for mistakes made in the course of running your business. For example, if you’re an accountant and a client claims you gave them bad advice, your professional liability insurance may cover your legal fees, judgments and settlements.

Professional liability insurance is also known as errors and omissions insurance.

Workers’ Compensation Insurance

If one of your employees becomes injured or ill on the job, workers’ compensation insurance pays the medical bills. Sole proprietors are often exempt from workers’ comp requirements, but if you have employees, make sure you understand your state’s workers’ comp laws.

The National Federation of Independent Business has one. State-by-State Comparison of Workers’ Comp Laws.

Other Home Based Business Insurance Options

Depending on the type of business you run, you may need special coverage such as:

• Commercial umbrella insurance. Once you reach your liability limit on your business insurance, commercial umbrella insurance kicks in. For example, if you are sued for $1 million but only have $500,000 in business liability coverage, your umbrella policy will work to cover the shortfall (your umbrella policy limit).
• Cyber ​​Liability Insurance. If your business suffers a cyber attack or data breach, cyber liability insurance covers costs such as data recovery, investigative services and identity recovery. It also includes legal fees, judgments and settlements.
• Employment Practices Liability Insurance. It pays to settle claims brought against you by employees, such as employee rights violations or wrongful termination. Employment practices liability insurance also covers your legal defense costs.

How Much Does Home Based Business Insurance Cost?

A business owners policy costs an average of $57 per month.According to Insureon. This includes general liability insurance, commercial property insurance and business interruption insurance. The cost of your home-based business insurance will depend on several factors, including:

• type of business
• Types of coverage you buy.
• Number of employees
• Business equipment and property
• location
• Coverage limits and deductibles

Do you need home-based business insurance?

If you’re deciding to buy home-based insurance, the Insurance Information Institute recommends asking yourself these questions:

• What is my home business?
• What unique risks might my business face?
• How many employees do I have?
• Do clients visit my property to conduct business?
• Does my business need a vehicle?
• Does my company have technology that protects clients’ personal or financial information?

Dick LaVey, President of Agency Markets in Hanoversays he recommends home-based business insurance for even the simplest business acquisitions.

A business insurance agent can help you work through these questions to determine where your business may be vulnerable, and where a home-based insurance business can help.