Home business insurance

Insurance for your home business is fairly limited under your homeowners policy. For adequate coverage, you may need to buy a home business policy.

Pat Howard 1600

Pat Howard

Published December 20, 2018

Homeowners insurance is financial protection for your personal property if its damaged or stolen, and it may cover liability expenses if you’re sued.

However, if you work from home or run a business out of your home, insurance coverage for your business property is fairly limited. And if a client or employee is injured at your home, your liability protection may not cover the resulting legal or medical bills.

Not to worry though — most insurance companies offer a few different coverage options for home businesses. The type of coverage you need depends on a number of factors, like how many employees work out of your house, how much revenue your business takes in and what type of assets are tied to your home business.

If all you need is a couple thousand dollars more in business property protection, most insurers will offer to increase your business property coverage limits for an additional premium. But if you need higher coverage limits (say, $10,000 worth), lost income protection, and business liability protection, you’ll need to add an in-home business policy or endorsement. If you run a larger home business with multiple locations, you’ll want to go even further and get a businessowners policy (BOP).

Read on to learn more:

Why you need home business coverage

If you run a business out of your home, there’s a good chance you need more coverage than what’s afforded to you by your homeowners insurance policy. But very few people realize there’s a tremendous gap between what’s covered and what they think is covered.

In fact, according to a survey conducted by the Independent Insurance Agents & Brokers of America, 87% of home businessowners don’t realize the need for separate business insurance. Here’s what it found:

  • 39% found business insurance unnecessary since they had a homeowners policy
    • 29% thought their business was too small or posed zero risk
    • 19% were underinsured for no reason at all

The study further concluded that most businessowners without adequate coverage assumed that business insurance was too expensive and were willing to live with a potential loss.

What the surveyed bunch may not understand is that it’s not simply your computers, camera equipment, or fax machine that need protection. You also need to think about your personal liability if a client takes a tumble down your stairs and decides to sue, workers compensation for injured employees who get hurt on the job, protection for your business property away from your home, and income protection if your house burns to the ground and you’re not able to work for an extended period.

In addition to property and liability limitations, you should also keep in mind that your standard home insurance may have “business property” restrictions; if a bunch of sensitive documents were stolen from boxes in a detached garage or structure on your property, that wouldn’t be covered under a standard home insurance policy.

Insuring your home business

Home business insurance is intended for a variety of businesses with different coverage needs. Insurers understand this, and will generally be able to write you a policy that fits your business or point you toward the right coverages. A homeowner who conducts swim lessons from their backyard swimming pool may need different business coverage than a homeowner who builds websites from their basement.

As we touched on earlier, most carriers will let you increase your business property sublimits up to a certain amount with a business property endorsement. If you need even more property coverage or have more coverage needs, you may want to look into getting an in-home business policy or buying a more robust businessowners policy (BOP).

Increased limits for business property endorsement

Your home insurance policy’s personal property coverage typically covers up to $2,500 in business property if the loss occurred in your home, and $250 to $500 for off-premises losses. To increase your business property sublimits, most standard carriers offer a business property endorsement for a small additional premium. The increase isn’t much – up to $5,000 for on-premises losses and $1,000 for off-premises losses – but it may be enough if you run a lean operation.

However, this endorsement doesn’t extend liability protection to business activities, and if the loss occurred in a detached structure on your property, your claim for losses would most likely be denied.

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In-home business policy

An in-home business policy, or endorsement, is more comprehensive coverage for your home business than a simple business property endorsement. These policies are intended for businesses with up to three people and less than $250,000 in revenue, and while it varies by insurer, coverage perks typically look like this:

  • Up to $10,000 in business property coverage
  • Liability protection for business-related injury
  • Income replacement
  • Data recovery
  • Losses which occur in other structures on your property

While insurers may package business property and liability coverage under one policy, some speciality insurers may offer the two coverages and endorsements – like income replacement and data recovery – separately. Be sure to read the fine print of your policy and make sure all your business coverage needs are being properly met.

Businessowners policy (BOP)

If you run a larger home business operation – more than three employees and over $250,000 in annual revenue – and you want to group a number of different coverages under one policy along with property coverage limits that exceed $10,000, you may want to look into a businessowners policy (BOP).

BOP coverage can be written for home-based businesses, but it's traditionally designed for commercial businesses that feature multiple locations. BOP policies typically don’t offer business automobile coverage, workers compensation, health, or disability insurance.

Additional home business coverage to consider

Depending on the size and scope of your home business, you may also want to consider coverages that aren’t featured in a standard business endorsement or businessowners policy.

Commercial automobile coverage

If you operate a florist business out of your garage and own multiple delivery vans, you’re going to need to insure the vehicles with commercial auto insurance. Talk to your car insurance company about coverage for your business vehicles, or speak to a licensed representative at Policygenius, who may be able to bundle your commercial auto and business insurance policies, which can also lower your rates.

Workers compensation

Should one of your employees become injured while on the job, your business insurance won’t compensate them for lost income. To protect your employees, you’ll need to add workers compensation coverage to your business.

Umbrella insurance

This increases your liability limits beyond the amount in your underlying policy. One caveat to keep in mind — your umbrella coverage won’t supplement business losses that aren’t covered by your homeowners insurance. In order for your umbrella insurance to take effect for your business, you need to make sure the business-related loss is covered under an existing home business endorsement or policy.