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Is Homeowners Insurance Enough for Your Home-Based Business?

    5 minute read

    With over half of the 33 million small businesses in the United States operating from home, the flexibility and convenience of home-based ventures are increasingly appealing to new entrepreneurs. However, many new entrepreneurs underestimate the risks of running a business from the comfort of their homes. According to a recent survey, nearly 40% of home-based businesses do not have any form of business insurance, leaving them vulnerable to a range of unforeseen events. In this article, we’ll navigate the intricacies of home-based business insurance, exploring the types of coverage you need, and how they can protect your venture.

    Home-Based Businesses That May Need Insurance

    Contrary to popular belief, even home-based businesses face potential risks that require insurance coverage. Even if you’re running a part-time, seasonal, or full-time business from home, it’s crucial to evaluate your insurance needs. Here are some examples of occupations that should consider getting coverage:

    – Accountant and tax preparer
    – Virtual assistant
    – Graphic designer and web developer
    – Social media manager
    – E-commerce manager
    – Photographers
    – Tutor
    – Translation services
    – Pet grooming or sitting
    – Beauty salon or barbershop
    – Personal trainer
    – Childcare provider
    – Caterer and food sale
    – Crafts and handmade goods

    Ways To Purchase Extra Coverage for Your Home-Based Business

    personal trainer in home gym

    Protecting your home-based business with the right type of coverage insurance is crucial for its success. While homeowners insurance provides some basic coverage for your business activities, it may not be enough for larger operations or those requiring specialized protection. Here are two primary ways to obtain extra coverage:

    1. Add an Endorsement to Your Homeowners Insurance Policy

    Certain insurance providers typically offer endorsements that can be added to your homeowners policy to provide coverage for business inventory that is stored in your home. Not every homeowner’s insurance policy provides coverage for business property thought. Even if yours does, the coverage limits may not be adequate to protect it. It’s important to note that this option is only suitable for very small businesses or for those starting off their entrepreneurial journey.

    2. Purchase Business Insurance

    For larger businesses or those with higher coverage requirements, business insurance offers more robust protection. These types of policies can provide better coverage limits for business equipment and liability over a typical home insurance policy endorsement. Business insurance policies are particularly beneficial for businesses that receive regular visitors or have substantial business property to insure.

    What Kind of Insurance Do Home-Based Businesses Need?

    Home-based businesses face unique risks that require specialized insurance coverage. Below are some of the types of business insurance for home-based businesses – and what those policies typically cover:

    1. General Liability

    This is the most fundamental insurance coverage for any business. It provides protection against lawsuits arising from bodily injuries and property damage caused by your operations. It covers legal expenses, medical bills, and settlements awarded to the injured party. Whether you own a brick-and-mortar store, e-commerce business, or home-based operation, general liability insurance is invaluable.

    2. Professional Liability Insurance

    Also known as errors and omissions (E&O) insurance, this coverage protects business owners from negligence or error claims made from their professional service or advice. It’s particularly relevant for businesses that provide services such as consulting, marketing, or grooming services. If your actions or recommendations lead to a financial loss or harm to your clients, professional liability insurance helps cover legal fees and settlements arising from those claims.

    3. Product Liability Insurance

    This type of coverage shields your business when your products are defective or faulty and cause property damage or bodily injury to a user. Product liability insurance safeguards you from financial loss, including legal fees and settlements. If your business manufactures or sells products, having product liability insurance is essential.

    4. Commercial Property Insurance

    Commercial Property Insurance helps your business stay afloat by covering the repair or replacement of your business’s physical assets such as buildings, inventory, and equipment in a covered loss. Covered events typically include water damage, fire, wind, and man-made events like theft and vandalism.

    5. Commercial Auto Insurance

    If you use a car for work purposes, such as delivering a product or meeting with clients, you’ll need commercial auto insurance. Your personal car insurance policy won’t cover work-related accidents. A commercial auto policy can pay for the medical bills of injured drivers and passengers and the repairs to your vehicle or the other driver’s vehicle in a covered event.

    6. Inland Marine Insurance

    Inland marine insurance helps cover business property while it is in transit or stored off-premises, protecting the inventory from theft, vandalism, as well as certain weather events. This type of insurance is particularly beneficial for online retailers that ship products to customers, contractors who transport tools and equipment to job sites, and businesses that store inventory at warehouses.

    7. Cyber Liability Insurance

    If you store client or employee data, especially sensitive data such as payment information, you’ll need a cyber liability policy or endorsement. It covers lost or corrupt data, several types of liabilities, identity theft, cyber extortion, and reputation recovery, in addition to providing business interruption coverage for cyber incidents.

    Pro Tip: Consider bundling multiple insurance policies into a customized business owner’s policy (BOP). It’s a cost-effective way and typically combines general liability insurance, commercial property insurance, and business interruption insurance into a single policy.

    Why You Shouldn’t Rely on Your Homeowner Insurance

    female operating plant business

    Relying solely on homeowner insurance for your home-based business is a risky idea. While a homeowner policy may provide some basic coverage for your business activities conducted from home, it often falls short of protecting the unique risks associated with running a business. For example, here are some key reasons why homeowner insurance is not a suitable solution for home-based businesses:

    • Limited Coverage: Homeowner insurance typically excludes business-related property damage, liability claims, and data breaches.
      • Scenario: Imagine a freelance graphic designer who operates their business from home. Under a standard homeowner insurance policy, the coverage for business property is typically $2,500. For a graphic designer with expensive computers and software, this coverage would be insufficient.
    • Inadequate Coverage: Even if your homeowner policy covers some business-related risks, the limits or coverage may be insufficient to compensate for potential losses.
      • Scenario: Consider a tax preparer who provides tax filing for clients remotely. If this tax preparer makes an error in their work that leads to financial losses for their client, the homeowner insurance policy does not provide coverage for their damages.
    • Potential Policy Voidance: Depending on certain insurance providers, operating a business from home may violate the terms of your homeowner insurance policy, rendering it void in case of a claim. Additionally, homeowners insurance typically excludes coverage for certain business activities, leaving you unprotected in case of theft, damage, or liability claims.

    Speak With a Business Insurance Specialist

    Operating a business from home offers flexibility and convenience, but it also introduces potential risks. To mitigate these risks and protect yourself, consulting with an insurance specialist is crucial. Speak with one of our Commercial Insurance Specialists today at (855) 919-4247 for a quick and easy free quote. Our knowledgeable commercial insurance team is committed to assisting you in comparing insurance quotes and finding the right protection for your business.

    The information in this article is obtained from various sources and offered for educational purposes only. Furthermore, it should not replace the advice of a qualified professional. The definitions, terms, and coverage in each policy may differ from those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied.