Running a home-based business presents multiple potential risks, which should be considered and protected against whenever possible. If you’re one of the 15 million home-based business owners (who represent about 50 percent of all small businesses in the U.S.), make sure you and your business are well protected. We at Winter-Dent can help you find a customizable insurance solution that will help.
Homeowners Insurance Isn’t Sufficient for Home-Based Businesses
Simply put, homeowners insurance doesn’t provide sufficient insurance coverage for a home-based business. Even if your business is located on the insured premises, homeowners policies generally protect against personal -- and not business -- risks.
Assuming you have a typical homeowners insurance policy, it likely provides good coverage for your house, your belongings, and your family (against personal liability lawsuits). Here are a few ways it likely falls short of providing good insurance for running a business from home:
- Low Business Limit: Standard homeowners insurance policies typically cover only $2,500 in business losses. This might be sufficient for the sub-$5,000 capital that most home-based business owners initially invest. It won’t be sufficient if you have a structure destroyed, lose substantial income, or successfully grow the business beyond its initial value.
- No Off-Premises Coverage: Homeowner's insurance policies frequently limit coverage for belongings to when those belongings are on the insured premises. Even a $2,500 business coverage allowance probably won’t apply to equipment or inventory loss that occurs off-site. This can be an especially important concern for wedding photographers who take cameras to clients’ locations, tradespeople who use tools on job sites, and consultants who bring laptops to public meeting places.
- No Other Structures Coverage: Homeowner's insurance policies usually exclude coverage for secondary or other structures from their standard protections, and this is doubly true when those structures are used for business purposes. A detached garage that’s a workshop or shed that’s used as an office likely won’t be covered against damage.
- No Business Liability Coverage: The personal liability coverage provided by homeowners insurance policies normally doesn’t apply to business liability risks. Others’ injuries and damage that are a result of common work accidents, professional errors, or sold products won’t be covered.
Insurance Options for Home-Based Business Owners
Because home-based businesses have diverse risk exposures and coverage needs, there are multiple types of insurance for home-based businesses. Here are some you may want or need.
Commercial General Liability Coverage
General liability coverage helps protect against common accidents that cause injury and/or property damage to a third party. It also can cover slander, libel, and false advertising suits.
The protections afforded by a commercial general liability policy are similar to those that a homeowners policy’s personal liability coverage provides. The terms of a commercial general liability policy will be adapted to cover injuries that customers, vendors, or other third parties might sustain, rather than accidents that harm friends, family, or neighbors.
General liability can be purchased on its own, but many home-based business owners elect to get it through a business owners policy (BOP). BOPs combine general liability and commercial property coverages (see below), and they might offer some other optional protections.
Business Property Coverage
Business property coverage may protect a secondary structure that serves as a workspace, as well as “possessions” that a business has. These can include equipment, tools, supplies, and inventory. Coverage can also extend beyond a business’s primary, home-based location.
As with general liability, business property coverage is widely available through business owners' policies.
Professional Liability Coverage
Professional liability coverage commonly extends to work errors that result in injury, property damage, or financial harm. It’s specialized for different professions, possibly covering errors such as the following:
- An attorney misses a deadline that negatively impacts a client’s case
- A real estate agent provides incorrect information about a property
- A plumber gives incorrect advice that results in water damage
Many other professions and errors could be covered. If you’re exposed to potential negligence lawsuits, this is important coverage to consider.
Product Liability Coverage
Product liability coverage extends to injuries, illnesses, and harm that are caused by sold products. Products most obviously include made widgets, but they also can include shampoos, pet treats, toys, and even cupcakes that a business makes and/or sells.
Cyber Liability Coverage
Cyber liability coverage protects against the compromise of sensitive information. Information can include social security numbers, credit card numbers, counseling noes, and other data, and both employee and customer/client information can be covered.
Both malicious attacks and innocent breaches can compromise data. A successful hack, an email sent to the wrong person, or a laptop lost at a cafe could all be covered by a strong cyber liability policy.
Commercial Auto Coverage
Commercial auto coverage insures vehicles that are driven for business purposes. You’ll need this coverage if your business owns a commercially registered vehicle, and you might need a basic commercial auto policy if you drive a personal vehicle for work.
Accounts Receivable Coverage
Accounts receivable coverage provides compensation if customers/clients’ bills go unpaid. Without such protection, your business could have serious cash flow problems if bills aren’t paid.
Loss of Income Coverage
Loss of income coverage provides compensation if your business is unable to operate as a result of a covered incident. It could provide supplementary revenue for a month or more.
Workers Compensation Coverage
Workers' compensation coverage protects against work-related injuries, and businesses that have employees are usually required by state law to carry it. Assume you need this coverage if you have remote employees (not hired as independent contractors).
How Much Home-Based Business Insurance Costs
Premiums for home-based business insurance are determined by many factors, not the least of which are the insurance coverages purchased. Despite variance in cost, this isn’t an expense you want to skimp on -- the cost of a claim can be much higher than an annual premium.
Ensure Your Home-Based Business Well
For help ensuring your home-based business, contact us at Winter-Dent. One of our agents will work with you to assess coverage needs, and then we’ll help you find a solution that includes those coverages at an affordable price. We understand your home-based business is a true business, and we’ll help protect it as such.
