More than half of all U.S. businesses – 52% – are based in the home, according to the U.S. Census Bureau. A recent study commissioned by the Independent Insurance Agents & Brokers of America found that nearly 60% of home-based businesses do not have insurance coverage.
“When asked about the lack of insurance, nearly 40% of home-based business owners say they thought they were protected by some other type of coverage, while almost 30% say their businesses are too small to insure,” the IIABA said. “Notably, nearly 20% could not give a reason for not having insurance.”
Homeowners insurance covers incidents such as loss or theft of personal property. But if a delivery person slips and falls on your property or your business equipment is destroyed in a fire, homeowners insurance won’t protect you. Without coverage specifically designed for your home business, you put your livelihood, and possibly that of your employees, at risk. That’s why home-based business insurance is a good idea.
Choosing the right policy
No matter how small your home-based business, make sure you’re protected with the right coverage. There are three main property and liability options for home-based business insurance:
- Homeowners policy endorsements: Adding an endorsement, also known as a rider, to your existing homeowners policy is often the simplest and most affordable way to insure smaller home businesses that don’t manufacture products on the premises or use a lot of equipment. Endorsements are also a good fit for solo entrepreneurs with few business-related visitors.
- In-home business policy: Combining home and business insurance into a single plan, this type of policy offers more specific types of coverage. This policy is a step up from a basic homeowners policy endorsement, offering a greater range of coverage for a growing business. If your in-home business has developed into a mid-level operation with more visitors, equipment and output, this may be the policy for you. Such a policy may include more extensive property and liability coverage than endorsements, as well as business interruption coverage, which protects your income in the event your business is disrupted because of a disaster.
Examples of what kinds of businesses would use this policy include a small baking operation that meets with clients in person and also does all baking, orders and shipping in-house; a clothing designer who fits clients, as well as manufactures and ships goods, from home or an accountant who makes regular in-person appointments and uses certain rooms in the house as dedicated office space. - Business owners policy: Often referred to as a BOP, this type of policy is the most comprehensive form of coverage for home-based businesses. It offers protection for claims brought by contractors, customers and employees, making it a good option for larger home-based businesses. It’s also the best fit for in-home businesses that operate in multiple locations or require extensive travel off-site.
Additional coverage
Whichever policy you consider best for the size and type of your business, be aware that you may need additional coverage not included in a standard plan. Here are some additional coverage options you may want to discuss with your insurance agent, if the plan you’re considering doesn’t include them:
- Data compromise coverage: Helps protect you and your business from legal action stemming from a security breach that compromises confidential customer or client information.
- Employment practices coverage: Protects against claims brought against you and your business by your employees.
- Key person insurance: Basically life insurance on a person critical to the success of a business such as the owner, founder or a key employee, without whom the company might fail.
Most states require home-based businesses to purchase workers’ compensation insurance for employees, but purchasing this coverage is a smart move even if not mandated by law.
As you can see, in-home business insurance isn’t a one-size-fits-all consideration.
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