It seems natural to look to your homeowners insurance to help you when problems arise in your home business. After all, you’re at your house, right?
In specific situations, homeowners insurance will protect your home business but it is not automatically included in a standard policy.
Just like any other business, a home-based operation requires some form of insurance to protect its owner and employees from liability claims.
In the past decade, the number of individuals who work from home has grown dramatically. This includes remote employees, freelancers, and entrepreneurs who run businesses out of their homes. Unfortunately, many home businesses don’t consider liability insurance until after something bad happens.
Why do I need to think about insurance for my home business?
Running a business from your home means that you’re engaging in activities that you otherwise wouldn’t. This is true if you are a self-employed accountant, or running a manufacturing operation from your garage.
What this means for insurance companies is that there is more risk originating from your home.
A typical homeowners insurance policy may not even offer the amount of coverage you need to protect you in the case of a lawsuit or injury that occurred as a result of your business.
In addition, components of your business could be in violation of your homeowners insurance policy. For example, you may have an employee in your home who is welding or using dangerous power tools. You could put yourself at risk for cancellation if you have not taken the right coverage.
What are my home insurance options for my home business?
According to the Insurance Information Institute (III), there are three main insurance options for home-based businesses.
Homeowners insurance policy rider or endorsement
With a home business policy rider, homeowners insurance will protect your business–if your business is small.
This option is most appropriate for self-employed individuals with very little equipment and no inventory (e.g., writers and web developers). This type of plan covers damage or theft or equipment, usually up to a maximum of $10,000. A policy rider may also have some type of liability coverage for occasional visitors like delivery personnel.
In-home business policy
An in-home business policy is appropriate for a business with fewer than four employees.
This type of policy is offered by well-known home insurance carriers, and also companies that focus specifically on this type of insurance. An in-home business policy covers equipment and liability up to a higher than a homeowners insurance endorsement. In addition, it covers damage to records and inventory and may cover lost income if your home is damaged to a point where you can’t work out of it.
Businessowners policy (BOP)
A BOP is intended for a business that operates in multiple places but is headquartered at a home.
It’s similar to an in-home business policy but designed to cover more equipment, employees, and liability. These plans can be customized to include auto and umbrella coverage. This is important if you or an employee needs to do a significant amount of driving to operate the business successfully.
How do I figure out which insurance policy is best for my home business?
So, can you get by with a homeowners insurance policy rider? Do you need insurance at all? Here are some important factors to consider.
- Your primary place of work – If you run your business in a separate location and occasionally work out of a home office, you don’t need any additional coverage. Your homeowners insurance covers your home office, and your business policy (presuming you have one) covers everything else.
- Your primary source of income – If your home-based business is your family’s primary source of income, you should not scrimp on insurance. Consider taking out policies with very high coverage limits so you can easily resolve liability issues without eating into your bottom line.
- The number of business visitors to your home – The more people who visit your home, the more you put yourself at risk for being held liable for an injury. If you receive multiple business-related deliveries a day or are music teacher with several students, you may need more than a policy rider even if you don’t have employees.
- Storing data and confidential information – Theft or damage to confidential business or customer information could result in huge financial losses. You could also be sued by customers for losing their confidential data–a basic home business rider will not cover that.
- Your current home insurance policy – If you’re setting up a small operation, you should research what kind of home business options your insurance company offers. It’s possible that you will need a separate plan, so you should inquire to make sure.