Home Based Business Insurance: Is It Required?

Home-based business insurance may be required if you employ workers or if you have an outstanding commercial loan. Additional types of insurance policies may be necessary depending on what services or products your business offers.

While 52% of businesses start at home according to the Small Business Administration, not all home-based business owners realize that their homeowners insurance policy will not cover business-related losses or liability. Home-based business insurance is purchasable as a homeowners insurance endorsement or a traditional commercial policy. Endorsements typically offer limited coverage, while a traditional commercial policy provides wider protection and higher limits.

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 lawsuits are filed against you. Home-based 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.

Standard homeowners insurance likely won’t cover your business assets or liability. Some homeowners policies will have business-related exclusions and won’t cover your business property if it is destroyed or stolen. You’re not covered if a customer or client sues you, either. If an insurance adjuster investigating your claim discovers your home-based business, they may issue a claim denial and you will need to pay for your losses out of pocket.

How Does Home-Based Business Insurance Work?

Home-based business owners can obtain coverage typically in one of two ways. The first route is purchasing a home policy endorsement, which takes your existing policy and extends coverage to commercial property, such as computers, printers and inventory, and for liability claims related to customers and clients. The second solution is purchasing a commercial policy, which is what most standard businesses have.

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Home-based business insurance covers commercial property, such as inventory and electronics, and liability in case lawsuits are filed against you.

Is Home-Based Business Insurance Required?

If your home-based business employs W-2 workers, you are legally required to have workers’ compensation, unemployment, and disability insurance. If you take out a commercial loan to finance your home-based enterprise, your lender may also enforce other insurance requirements, such as general liability and professional liability insurance.

You should double-check insurance requirements applicable to your state and industry. Generally, insurance will be essential if any of the following instances apply to your home-based business:

• Customers or clients visit your home
• Inventory is stored at home, such as in your garage or kitchen
• You store important commercial documents (e.g., a home-based accounting practice may have client tax information) on your computer or hard drives at home
• Your income would be severely impacted if something happened to your home

Example: Jane operates a bakery business out of her home. Jane’s kitchen is equipped with expensive cooking and baking equipment, including an industrial stove and oven, and she employs one worker to help her with the morning prep work. Jane requires customers to pick up their orders at her house. Jane’s bakery business is her main source of income, and she would face financial hardship if her home suffered a loss because it would halt business operations.

In this case, Jane should purchase home-based business insurance to protect her business equipment, employees and income. Without insurance, she’d have to pay out of pocket for lawyer fees, employee medical bills, client’s damaged property and more.

Types of Home-Based Business Insurance

Insurance solutions for home business insurance can range from an add-on to your existing homeowners policy to buying a standalone business insurance policy.

Standard homeowners insurance likely won’t cover your business assets or liability.

Endorsement to Homeowners Insurance Policy

A home-based business endorsement is an add-on to your home insurance policy that extends coverage to your business assets, such as work computers and equipment. Commercial liability coverage, which would cover you if a customer or client is injured or their property is damaged while inside your home, is not always included but may be purchasable as a separate home insurance endorsement. Double-check with your insurance agent.

An in-home business policy is another type of homeowners insurance endorsement and offers wider coverage for your business assets and liability expenses than a standard endorsement. Business owners may want to consider this type of policy if they want additional protection for critical work documents, accounts receivable and off-site business property. An in-home policy may also cover business interruption paying for your lost income and even payroll.

Adding an endorsement to your home insurance is one way to have to home based business insurance.

Commercial Insurance Policy

If you have run a larger home-based enterprise, then a traditional comercial policy may work better for you. Below are some common types of commercial insurance policies that may be useful for home-based businesses.

• General liability insurance (GLI): Covers multiple types of incidents you’re liable for, such as injuries or property damages to customers, libel, slander and more. GLI insurance also pays for legal expenses if you are sued.
• Professional liability insurance: Covers liability costs related to your professional integrity, such as malpractice or negligence. This type of coverage is useful for home-based service businesses, such as accounting or marketing practices.
• Workers’ compensation insurance: Pays for your employees’ income loss after a work-related illness or injury. Home-based businesses are more likely to be solopreneur ventures but may be useful if you hire an in-person assistant or delivery person.
• Business owner’s policy (BOP): This policy conveniently bundles multiple types of commercial coverage — usually property insurance, liability insurance and business interruption insurance.

Other Home-Based Business Insurance Options

The following insurance policies and endorsements may be useful depending on what type of home-based business you operate.

• Commercial car insurance: Neither your home insurance policy nor personal auto policy will cover your car for business use, such as delivering products to customers. You will need to buy a separate commercial car insurance policy.
• Cyber breach 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.
• Identity theft protection: Provides coverage for you and your employees if your business or personal information is used to commit a crime or fraud. Pays for expenses related to recovering your identity and resources for preventing future fraudulent activity under your name.

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You can also purchase a commercial policy, which is what most standard businesses have.

How To Get Insurance for Home-Based Businesses

Follow these three simple steps to get insurance for your home-based business:

#1 Assess Your Insurance Needs

The type of insurance policy you should buy will depend on the size and nature of your business. If it’s a relatively small enterprise with little equipment and minimal liability exposure, the limited coverage a home policy endorsement offers may be enough.

However, if it’s your main source of income, you have several employees, you work with expensive equipment and you have greater liability exposure, you may want to consider a traditional commercial policy. A commercial policy typically offers wider coverage, including workers comp for employees and higher coverage limits than a home policy endorsement.

#2 Compare Rates From Multiple Insurers

Get quotes from multiple insurance companies to find the lowest price for your desired coverage. Consider starting with your homeowners insurance company because you may qualify for a bundling discount when you purchase two or more types of insurance policies.

#3 Re-evaluate Your Risk Exposure

As your business grows or downsizes over time, so can your insurance needs. If you started off as a solopreneur but you’re planning to hire workers, you’ll need to buy a policy that provides workers’ compensation coverage. Or, if you’re working with bigger clients with even bigger budgets, you may want to increase your liability coverage and buy an endorsement for cyber attacks.

Key Takeaways Home-based business insurance, which can take the form of a home insurance endorsement or a standalone commercial policy, can provide coverage for your commercial property if it suffers a covered loss and liability if a customer or client sues you. A standard homeowners policy may not extend coverage for business assets and liability. Home-based business insurance may be available as a homeowners policy endorsement or a standalone commercial policy.

Don’t let your business assets go unprotected. SmartFinancial can help you find a homeowners policy that covers both your personal and business property. Just enter your zip code below or call 855.214.2291 to receive your free homeowners or commercial insurance quotes.