Home-based businesses are very popular, and for good reason. They typically have low start-up costs, you don’t have to pay rent or buy a new building for your business, and you can work in your pajamas!
Many people mistakenly believe that their homeowners insurance will cover their home-based business. This mistake could be extremely costly and put not only your business, but also your home, at risk of voiding any coverage you do have.
Simply put, your home-based business will need some type of business insurance to be properly covered.
What Is Home-Based Business Insurance?
Home-based business insurance is simply a name for regular business insurance that applies to your home; it’s not a separate type of insurance policy. Home-based business insurance could apply to the following types of business or commercial insurance policies:
- General liability: This business liability insurance can either be sold by itself or as a part of a commercial package policy, but it gives you broad coverage for lawsuits, legal fees, and settlements if somebody sues your business for a wide range of reasons.
- Business personal property: You may be able to add all of your business’ equipment and contents to your general liability policy, but you likely won’t be able to only buy a policy that covers your business contents. You may have limited coverage for your business contents under your homeowners, but most home insurance policies have a limit of around $2,500 worth of business contents.
- Business owners policy (BOP): The most comprehensive business insurance policy for small businesses, a BOP can provide business contents coverage and general liability insurance in one policy, and typically comes with a wide range of extra coverages and benefits.
- Professional liability: Also known as errors & omissions (E&O), if you operate a service-based or advice-based business, such as hairstylists, masseuse or chiropractors, realtors, financial advisors, insurance agents, or medical or natural health practitioners, having a separate professional liability insurance policy can cover you for malpractice or any lawsuit connected with the result of the services or professional advice you provide.
- Commercial auto or business use: If you’re using your vehicle for any reason while operating your business, you’ll want to make sure you at least have “business use” on your personal auto insurance policy for how you use your car. And if the business owns your vehicle, you’ll need commercial auto insurance.
Do Home-Based Businesses Need Insurance?
Yes, home-based businesses need some type of business insurance, particularly general liability insurance to protect the business from the costs of potential lawsuits.
In one sense, a home-based business is no different than any other business. If you were opening up a store in a location other than your home, you would probably realize that you need a separate business insurance policy.
At the very least, you likely need general liability insurance. General liability covers your business for many things, including:
- People getting hurt while visiting your business
- Faulty products that caused harm
- False advertisements that cause harm
- Infringement of another business’ copyrights
Those are simply some of the most common general liability claims, but simply put, general liability is normally affordable for small businesses and can be critically important in protecting your business’ future. One claim without liability insurance could put you out of business but still requiring you to pay for the damage.
Since your business is in your home, it may be tempting to think that your homeowners insurance covers your business, but it doesn’t. Homeowners insurance specifically excludes business activities, meaning you won’t have liability coverage for your business, and you’ll only have very limited coverage for your business contents.
Even worse, operating a business out of your home without the proper insurance could potentially void your homeowners insurance if you have a claim. For example, if you’re working from home and a fire starts, it may be difficult to prove that the fire didn’t start as a result of your business activities, which would mean the insurance company could fight the claim and not pay it.
Home-Based Business Health Insurance
As the owner of a home-based business, you’ll likely need to find your own health insurance plan. Fortunately, there are a few different options available to you:
- SHOP plan. The Small Business Health Options Program, or SHOP, is a government-run health insurance program designed to help small businesses. If you qualify for a SHOP plan, you may be eligible for up to a 50% tax credit through the Small Business Health Care Tax Credit.
- Join an existing group insurance plan. Your local chamber of commerce, university alumni, or various trade associations may have a group health insurance plan that you can join. You’ll have to do some research and ask around, but it may pay off.
- Buy your own group insurance plan. If you have at least one employee, you may be able to buy your own group insurance plan, which could cover you and your employees.
- Buy your own private insurance plan. You could always buy a private insurance plan and apply through the Marketplace, where you may be eligible for tax credits and lower premiums.
- Health Savings Account. An HSA is a popular health insurance plan that allows you to contribute pre-tax dollars into your account that grows with interest. If you use your HSA money for medical expenses, you can take it out tax-free. You’ll need to enroll in a high deductible health insurance plan to qualify for an HSA.
Home Insurance for Home-Based Business
Depending on the nature and scale of your home-based business, you may be able to endorse, or modify, your current homeowners insurance policy to give you broader coverage for your business.
Most standard homeowners insurance policies have a limit of about $2,500 on business-specific personal contents. You can likely increase this amount, although you may not be able to go above $10,000 in business contents coverage on your homeowners insurance. If you have business contents worth more than that, you’ll probably need a BOP policy.
Depending on the nature of your business, you may also be able to add a business liability endorsement to your homeowners insurance policy. Most homeowners insurance programs are only comfortable doing this for low-risk businesses, such as music teachers or financial consultants.
Combining a business liability endorsement with increased business contents coverage should give you most of the coverage you need to run your home-based business. But those coverage options will only apply to business activities in your home, but if you take your business to another location for any reason, you won’t have coverage on your homeowners policy and will need to buy business insurance.
The Benefits of an Independent Insurance Agent
Talking with an independent insurance agent about your home-based business can provide you with critical advice. Not having the proper insurance in place could put both your business and your home at risk, not to mention potential lawsuits that you wouldn’t have any coverage for.
An independent insurance agent will get to know you and your home-based business and recommend the appropriate insurance coverages. Furthermore, they will have access to multiple insurance companies, giving you the lowest cost option with the most coverages in place.
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