A standard homeowners insurance policy won't safeguard your home-based business. In fact, many homeowners policies provide no, or very limited, insurance coverage for a business. In the event of a fire, robbery or other disaster, this means trouble.
There are special policies you can purchase to insure your in-home business. Below, we explore your options in greater detail.
No, Homeowners Insurance Doesn't Cover Your Business...
Homeowners policies weren't intended to cover business exposures. This includes all items you use for your business like:
- Fax machines
- Filing cabinets
Most policies limit you to $2,500 in coverage in your home and $250 in coverage away from home if something happens to these items. And your homeowners coverage provides no liability insurance for your home-based business.
This means you need additional, separate coverage for your business property if you're running a home-based business.
There Are Two Types of Coverage to Consider for Your Home-Based Business
Business insurance coverage falls into two main categories:
- Property coverage: Protects business structures and possessions against loss or damage caused by specified risks in the policy, such as fire and theft.
- Liability coverage: If your business causes bodily injury or property damage to someone, your insurance company will cover those costs (up to the maximum indicated in your policy), including the costs of defending your business in a lawsuit and medical payments for anyone injured.
There is additional, special coverage available, if you need it. But most businesses can get by with just these.
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In-Home Business Insurance Policy Options
There are several types of insurance policies available for in-home businesses. They include:
- Incidental business endorsement: This attaches to your homeowners policy and covers structures or equipment on your premises that you use for business. It can be customized to include liability coverage, too!
- Business owners package policy (BOP): This is an option for small to mid-sized businesses and provides property and liability coverage in one efficient package.
- In-home business owners policy: This combines homeowners and business owners coverage into a single policy, providing business liability and replacement of lost income, and homeowners coverages such as fire, theft and personal liability.
Check with your independent insurance agent to determine which of these options is best for your in-home business.
Protecting Your Vehicle(s)
Maybe you own a personal vehicle that you sometimes use for business. Or maybe your business is the owner of one or more vehicles. Here's the gist of how either affects coverage:
- If your car is primarily for personal use but sometimes used for business, your personal auto policy generally provides coverage.
- If your car is primarily business for use, your personal auto policy doesn't provide coverage.
An insurance professional can ask you questions to determine if you'll need to purchase a personal or commercial auto policy.
Your in-home business might be your full-time occupation. This means you'll need employee benefits, like health and life insurance, along with a retirement plan. In other words, you may need to provide employee benefits to yourself.
Here are some options to consider:
- Life insurance: Pays a specified amount of money upon your death to the person(s) you name as beneficiaries.
- Disability insurance - Provides payments to you if sickness or bodily injury prevents you from working.
- Health plan: Coverage for doctor visits, hospital services, medical tests and other costs incurred for medical care.
- Annuities: Periodic payments made over a specified term or for your life. You make payments to the insurance company in a lump sum, periodically, or as you arrange with the insurance company. Some annuities provide life insurance, too.
- Workers' compensation: If you hire employees, you're required to provide workers' compensation. It offers a schedule of benefits (no liability considerations) if an employee becomes injured as a result of a job-related accident or suffers an illness attributable to a workplace cause. If you own an incorporated business, workers' compensation also can cover you if you're ever injured.
The Bottom Line
Knowing what your homeowners policy covers and what it doesn't is critical to protecting your in-home business.
Check with your insurance professional for the best business coverage for your in-home business, including all the bells and whistles above.