Home-Based Business Insurance: Costs and Requirements Explained

Home-based business insurance helps protect your business’s commercial property and liability when operating from your home — especially since homeowners insurance typically excludes business-related risks and may leave you exposed to costly out-of-pocket losses. This coverage may be required if you employ workers or rely on expensive business equipment.

Home-based business insurance includes different types of commercial policies, such as liability coverage, property protection and business interruption insurance, designed to protect against property damage, liability claims and other losses.

Keep reading to learn more about home-based business insurance, what it covers and how to determine how much you’ll need.

What Is Home-Based Business Insurance?

Home-based business insurance is an insurance policy that covers commercial property, such as inventory and electronics, and liability in case a lawsuit is filed against you. Home-based business insurance may also include business interruption coverage, which replaces some of your income if your business is temporarily closed due to a covered event, like a fire.

Home-based business insurance is typically purchased through one of three methods based on your coverage needs:^[1]

• Endorsements to your existing homeowners or renters insurance policy
• A separate business insurance policy
• As part of a business owners policy (BOP)

What Does Home-Based Business Insurance Cover?

Home-based business insurance policies vary by insurance company, with some covering specific forms of liability while others may bundle multiple forms of coverage. Here are a few examples of some types of coverage among home-based business insurance policies:

• Liability: Home-based business insurance typically covers a variety of liability options, including general liability for customers and product liability for anything you make or sell. It may also include professional liability to cover legal fees if you’re taken to court over a failure of your product or service.
• Business equipment: This covers items such as inventory, furniture, computers and kitchenware if they are damaged or stolen.
• Business interruption: Similar to the loss of use coverage in a homeowners insurance policy, some policies may reimburse you for interruptions in your business if you are forced to vacate your home. This can include lost income, relocation costs and ongoing expenses.
• Cyber insurance: Cyber attacks can be costly to your business, but home-based business insurance often covers the costs of recuperating after one. This coverage may include credit monitoring after a data breach or legal services needed after sensitive client data is hacked.

We’ll discuss the individual types of home-based business insurance and what they specifically cover later.

Does Homeowners Insurance Cover a Home Business?

A typical homeowners policy may cover some aspects of a home business, but coverage is typically limited. For example, homeowners policies that cover home-based business equipment typically limit coverage for stolen or damaged business property to up to $2,500. However, there is no guarantee that your insurance policy will cover business property at all, so you should verify with your insurer to determine which additional coverages you may need.^[1]

What Types of Home-Based Businesses Need Insurance?

Home-based business owners who regularly host clients, operate with employees or store expensive inventory or business equipment should consider an in-home business policy to protect themselves from financial losses. Some of these business types include:

• Accountant
• Contractors
• Professional service providers
• E-commerce store
• Business consultants
• Childcare provider
• Pet groomer or trainer
• Personal trainer
• Photographer
• Website designer

Types of Coverage a Home-Based Business Might Need

Below are some common types of commercial insurance policies that may be useful for home-based businesses.

General Liability Insurance

General liability insurance (GLI) covers incidents for which you’re liable, such as injuries or property damage to customers. GLI also pays for legal expenses if you are sued.

Business Property Insurance

Business property insurance covers your home-based business equipment, inventory and furniture if they’re damaged or destroyed by a covered peril. Some insurers may not include coverage for business property stored outside your home if you purchase this coverage as an endorsement.^[2]

Professional Liability

Professional liability covers legal costs arising from your professional conduct, such as malpractice or negligence. This type of coverage is helpful for home-based service businesses, such as accounting or marketing practices.

Business Interruption Insurance

Business interruption insurance can replace lost income and reimburse operating costs if your business is forced to shut down temporarily due to a covered peril. Business interruption coverage is typically purchased through a business owners policy (BOP), which bundles it with business property and general liability insurance, rather than as a standalone policy.

Product Liability

Product liability covers you from legal fees if a product you create, distribute or sell causes harm to a customer. For example, if you create toys for children that accidentally contain a choking hazard without a warning, you could be protected from potential lawsuit costs.

Workers Compensation

Workers compensation pays for your employees’ income loss after a work-related illness or injury. While many home-based businesses are “solopreneur” ventures, your state may require that you buy this coverage depending on how many employees you hire.

Business Car Insurance

Neither your home insurance policy nor your personal auto policy will cover your car for business use, such as delivering products to customers. If you regularly drive a car as part of your home business, you will need to buy a separate commercial auto insurance policy.

Cyber Insurance

Cyber insurance covers losses associated with breaches in your business’s computer system. This includes liability costs if customers or clients sue your business because they faced a loss related to your business’s data breach.

How Much Does Home-Based Business Insurance Cost?

Home-based business insurance costs will vary based on the type of policies you need, desired coverage limits and deductible amount, among other factors. Coverages purchased as added endorsements to your homeowners policy may cost less than standalone coverage, but the coverage limits may be lower. Additionally, bundling several business coverages, such as with a business owners policy, may be cheaper than purchasing them separately.

Is Home-Based Business Insurance Required?

Home-based business insurance isn’t typically required by law unless you have full-time employees, but you should double-check the insurance requirements applicable to your state and industry.^[3]

For example, if your home-based business employs W-2 workers, you are legally required to have workers’ compensation insurance in all states except Texas, depending on the number of employees you have.^[4]

Generally, home business insurance will be essential if any of the following instances apply:

• You employ workers
• Customers or clients visit your home
• Inventory is stored at home, such as in your garage or kitchen
• You store important commercial documents either physically or electronically on your computer
• Your revenue would be severely impacted if something happened to your home

If one or more of these scenarios fit your business, you’ll likely need home-based business insurance to protect your business-related equipment, employees and income. Without insurance, you’d have to pay out of pocket for lost inventory, damaged equipment, lawyer fees, employee medical bills, damage to the client’s property and more.

What Happens if You Don't Report Your Home-Based Business?

If a homeowners insurance adjuster investigating your claim discovers your home-based business, they may issue a claim denial requiring you to pay for your losses out of pocket. Failing to report your home-based business to your insurer may also result in policy cancellation, which could result in coverage gaps while you find replacement insurance.^[5]

Home-Based Business Insurance at a Glance

Here’s a brief breakdown of the essential information you should know about home-based business insurance:

• Home-based business insurance doesn’t refer to a single type of insurance policy, but several forms of commercial insurance that are either beneficial or necessary when you operate your business out of your personal residence.
• Home-based business insurance typically isn’t required by law unless you have full-time employees, although you may be left paying for losses and legal expenses out of pocket without the right coverage.
• Some homeowners policies may offer limited coverage for business property, but you should consider either a commercial property endorsement or a standalone policy if you have business equipment or inventory worth more than $2,500 stored in your home.
• Factors like your business’s industry, how many employees you have and the business policies you need can all affect your monthly premiums for home-based business insurance.

How To Get the Right Policy for Your Home-Based Business

You’ll first need to determine how much insurance you need, which can vary depending on your business size and industry. Try getting quotes from three to five insurance companies, either as an endorsement to your existing homeowners insurance or as a new commercial policy. This process may be time-consuming and burdensome, as you’ll typically need to go through each insurance company individually to gather your rate options.

Consider using an insurance marketplace like SmartFinancial to help you get the insurance you need faster. After answering a brief questionnaire about your needs, we’ll connect you with a licensed insurance agent to help you find coverage to help protect yourself and your business. Click here to get free quotes for a commercial insurance policy today!