Many businesses start in people’s homes. In fact, as of 2018, half of the over 30 million small businesses operating in the U.S. were home-based. This arrangement offers many advantages like lower costs, tax benefits, and flexibility.
Although home-based businesses tend to operate on a smaller scale, they also face risks such as property damage and lawsuits. This means they need insurance.
If you’re a business owner operating from your home, you may believe that your homeowners insurance will give you the coverage you need, but you’d be mistaken. Most homeowners insurance policies exclude business-related claims.
The type of insurance coverage you need will depend on the type of business you operate. When considering your options, you should ask yourself the following question:
- What type of business do I run?
- What are the most common risks associated with this type of business?
- Do I use a lot of expensive equipment to operate my business?
- How much would it cost me to replace this equipment if it got stolen or damaged?
- Does running my business involve stocking valuable business inventory?
- Do I use my car or other vehicles for business purposes?
- Do contractors or clients have to visit my home for business purposes?
- Do I have employees?
- Do I store sensitive information on my customers?
As you can see from these questions, someone who runs a home baking business will face very different risks than someone who runs a childcare business or who does accounting from home. They’ll need something like a home baking insurance policy – an insurance package that includes coverages for their specific risks.
Here are some of the main types of insurance you should consider when operating a home-based business.
Homeowners Policy Endorsement
Running a business from home usually involves using office equipment like computers and printers. However, a typical homeowner’s policy has a low limit for equipment that’s used for business purposes.
You can get a homeowner’s policy endorsement that will double or triple your limit for a small additional premium.
You can also add a homeowners liability endorsement that will protect you in case a business-related visitor sustains an injury on your property. Note that this endorsement is only available if you have few visitors for business purposes.
In-Home Business Policy
An in-home home business policy is still quite affordable and provides you with more coverage than the endorsements we described in the previous section. You can think of it as the middle-ground between homeowner’s insurance and commercial insurance.
Note that the type of coverage offered by this insurance policy can vary depending on the provider, so you need to make sure you understand what’s included.
Business Owners Policy
Some home-based businesses face risks that go beyond what’s covered by an in-home business policy, so they need a business owner’s policy. This is actually a package of different coverages aimed at small businesses. General liability coverage, commercial property coverage, and business income coverage are all included.
The general liability part of the package will protect your business in case a third party sues you for bodily injury or property damage. This includes damage related to your products or services and advertising injuries like slander, libel, or misappropriation.