Coverage for your home business is fairly limited under your homeowners policy. To maximize coverage for your home-based business, you’ll need separate home business insurance.
Updated August 16, 2021|5 min read
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Homeowners insurance provides financial protection for your home and personal belongings if they’re damaged or burglarized, and it may cover your liability expenses if you’re sued because of an accident. However, a basic policy has limited coverage for home-based businesses.
Property used for business purposes, including a laptop, camera, tablet, or 3-D printer, has special limits of liability in a standard home insurance policy. The limit of liability for business property is typically $2,500 — meaning that is the maximum amount your insurer will pay out for damage or theft to your home-based business. Furthermore, the liability section in your homeowners insurance policy does not extend to business activities, so unless you have additional coverage, you’re out of luck if a client or employee is injured on your property.
If you’re an owner of a home-based business or work-from-home freelancer, you have a few additional coverage options to fill in those gaps in coverage.
A standard homeowners insurance policy covers business property up to a limited amount, typically $2,500
If you run a business out of your residence or work from home as a freelancer, you’ll want to consider additional coverage
If you own expensive business equipment or run a business out of your home, you may want to consider either a business property endorsement for your home insurance, a standalone in-home business policy, or a business owners policy (BOP)
If you run a business out of your home, there’s a good chance you need more coverage than what is provided in a homeowners insurance policy. Many in-home business owners and freelancers don’t realize that relying on homeowners insurance to cover work equipment can leave them with a sizable coverage gap.
In addition to protecting your business equipment, you also need to think about your personal liability if a client falls down the steps of your home and decides to sue, workers compensation for employees who get hurt on the job, protection for your business property away from your home, and lost income protection if your house burns to the ground and you’re not able to work for an extended period.
Below are a few considerations that will help you determine if you need home-based business coverage or not.
Work equipment costs: If your equipment exceeds $2,500, you’ll need additional coverage
How much you can pay out of pocket for repairs: Determine how much you can afford to pay out of pocket for new equipment before purchasing additional coverage.
Any manufacturer warranties for your equipment: If you have manufacturer warranties on your equipment, your property may already be protected against certain types of damage
If you have employees or clients that come to your home: Can you afford a lawsuit if a customer or employee is hurt at your home business?
If you have another source of income: Do you have a separate source of income if your home is damaged or if you get injured?
You should also keep in mind that your standard home insurance may have “business property” restrictions; if a bunch of sensitive work-related documents are stolen or there’s a data breach, that wouldn’t be covered under a standard home insurance policy either.
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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 direct you to the correct additional coverage options. If you’re a therapist who conducts at-home appointments, you’ll have different home business insurance needs than a freelance web developer.
Some insurers will let you set your business property limit of liability at a higher amount by adding a home business endorsement to your policy. If you need higher reimbursement limits or you have additional coverage needs, you may want to look into getting an in-home business policy or buying a more robust business owners policy.
Your home insurance policy’s personal property coverage will typically cover up to $2,500 in business property for on-premises business-related losses, and $250 to $500 for off-premises losses. Most standard homeowners insurance companies offer a policy endorsement to increase the limit of liability on property used for business purposes. This policy add-on will increase your business property coverage limits to $5,000 for on-premises losses and $1,000 for off-premises losses.
However, it typically doesn’t include liability protection related to business activities, and if the loss occurred in a detached structure on your property, your insurance claim would most likely be denied.
An in-home business policy is more comprehensive coverage for your home business than a simple business property endorsement. These policies are intended for businesses with up to three employees 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
Data breach coverage
Losses that occur in other structures on your property
While insurers may package business property and liability coverage under one policy, some specialty 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.
If you run a larger home business operation — more than three employees and over $250,000 in annual revenue — and you have property coverage needs that exceed $10,000, you may want to look into a business owners policy. BOP coverage includes both business property protection and general liability coverage.
Many insurance companies offer BOP coverage for home-based businesses, but it's traditionally designed for commercial businesses that feature multiple locations. A BOP typically doesn’t offer business automobile coverage, workers compensation, health, or disability insurance.
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.
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.
Should one of your employees become injured while on the job, your business insurance won’t compensate them for lost income. You’ll need to add workers compensation coverage to your business to protect your employees. In some states, workers comp is required if you have three or more employees.
An umbrella policy 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.
Standard homeowners insurance policies usually include up to $2,500 in business property coverage. That means if you use expensive cameras and laptops for your at-home business and it’s damaged in a fire, your insurer will reimburse you a maximum of $2,500 for the loss. Homeowners insurance typically excludes liability coverage for home-based businesses.
If you’re temporarily or permanently working from home but your laptop and other work equipment are owned by your employer, they will usually cover the cost of replacing it if it’s stolen or you misplace it. But if you are the owner of an at-home business or you have personal computers that you used for work, you’ll likely need some form of home-based business coverage.
How much it costs to insure a home business can vary and also depends on the size of the business. You can typically add a home business endorsement to your policy for an additional $25 annually to increase your coverage limits from $2,500 to $5,000. Some insurance companies may offer up to $10,000 in additional home business coverage.
Before taking out a mortgage, your lender will require that you get enough homeowners insurance to pay for a rebuild of the home in the event of fire or storm damage.
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