If you're among the growing number of entrepreneurs that work from home, you may think business insurance isn’t necessary.
First of all, what could go wrong? And secondly, won’t your homeowners insurance cover any losses?
Depending on your business, you could face potentially devastating losses if something does go wrong, and sadly, your homeowners insurance won’t cover business losses.
Learn more about the different types of home-based business insurance policies available and what they cover.
Why Do Home-Based Businesses Need Insurance?
Home-based business insurance protects the value of your business property against theft, fire, and other insured perils.
Without proper coverage, your business could be responsible to pay out-of-pocket for a variety of unexpected expenses, such as:
- Property damage
- Issues concerning data loss
- Employee injuries
- And more
Because renters and homeowners insurance does not cover business liabilities, a separate policy is critical to protect your business from potential losses.
What Type of Insurance Does a Home-Based Business Need?
The type of business insurance you need depends on the type of business or industry you’re in.
The most common types of home-based business insurance policies are:
- Property insurance
- Liability insurance
- Commercial auto insurance
- Cybersecurity insurance
- Workers’ compensation
- Business interruption insurance
- And more
It’s important to speak to a trusted insurance agent to evaluate your insurance needs. Some business policies also include endorsements to customize your insurance plan to fit both your needs and your budget.
How To Decide Which Types of Home-Based Business Insurance You Need
If you own a home-based business, you should ask yourself the following questions:
- Do you carry inventory, supplies, or products at your home?
- Do you have employees that work from your home?
- Do you have clients visiting your home?
- Would damage to your home interrupt your business?
- Do you maintain client or employee records on your computer?
If you answered yes to any of these questions, you should have business insurance for your home-based business. Take the time to consider any business risks to ensure you have the right coverage for your business needs.
9 Types of Insurance for Home-Based Businesses You Should Consider Purchasing
#1: General Liability Insurance
If you have visitors that come to your home for business purposes, then you need liability insurance.
Liability insurance will protect you from third-party injuries or property damages.
For example, if a delivery person slips and falls on your porch steps while delivering a box of inventory and injures himself, he can sue you for medical expenses, loss of wages, and more.
Your homeowners insurance policy will not protect you from claims made by business-related visitors.
#2: Professional Liability Insurance
Also known as errors and omissions insurance, professional liability insurance protects your home-based business against claims of negligence related to any professional service you offer.
Professional liability protects your business from claims relating to:
- Inaccurate or damaging advice
- Errors or omissions in your services provided; and
- Violation of fair dealing or good faith
- An interior designer orders the wrong carpet color
- A real estate agent forgets to inform the client of important details of a property
- A bookkeeper makes an error on a tax return
#3: Business Property Insurance
Any type of equipment required to run your home-based business, such as …
- And more
… is protected under business property insurance policies. Your homeowners insurance policy typically will not provide coverage for property losses by flood, fire, theft, etc.
#4: Product Liability Insurance
If your business makes or supplies a product that could cause damage to a person or property, product liability insurance will protect your business from any related claims.
For example, if your home-based business sells aftermarket auto parts and a customer is injured or property is damaged as a result of a faulty part, you could be sued.
Product liability insurance can help cover the expenses of such lawsuits.
#5: Commercial Auto Insurance
Any vehicles used for business-related tasks, such as …
- Making deliveries
- Picking up materials
- Visiting or transporting clients
- Employee transportation
- Hauling special equipment or tools
… are considered commercial vehicles.
Look at it this way; if your vehicle is used for anything more than your daily commute to a location related to your business, then you may require commercial auto insurance.
#6: Business Interruption Insurance
Business interruption (loss of income) insurance is typically included in a business owner’s policy, but it’s a good idea to check with your agent to be sure you have it.
Business interruption insurance covers you for loss of income should any unexpected event lead to periods where you cannot carry out your business as usual.
#7: Cybersecurity Insurance
If you handle or store any customer or employee data (credit card numbers, personal identification information, etc.), you should have cybersecurity insurance.
This type of insurance may include …
- Breach of data insurance; and
- Cyber liability insurance
… and covers the cost of notifying customers of a breach, your legal defense, and more.
#8: Commercial Crime Insurance
Sadly, businesses of all sizes — even home-based businesses — are vulnerable to dishonest acts.
Commercial crime insurance provides coverage that’s generally not included in a basic business owner’s policy and protects your company from losses related to dishonest acts committed by employees or third parties.
You may want to consider adding crime insurance to your policy if you:
- Hire employees or volunteers to perform tasks
- Maintain customer records
- Maintain company financial records
- Accept cash, check, or credit card payments
- Conduct business with vendors or customers
- Maintain inventory of materials or goods
Commercial crime insurance may protect you against losses resulting from the following types of criminal and dishonest acts:
- Theft or destruction of property
- Forgery or alteration of documents
- Robbery and burglary of a safe
- Computer fraud
- Employee or volunteer dishonesty
- Robbery outside the premises
- Burglary from the premises
#9: Workers’ Compensation
If you have employees working at your home-based business, workers’ compensation is a must in most states.
Workers’ compensation insurance provides benefits to any employee who is injured on the job, such as:
- Missed wages
- Medical expenses
- Legal costs; and
- Permanent disability
What Does Insurance for a Home-Based Business Cost?
Various factors can affect the cost of home-based business insurance policies, such as:
- Type of coverage
- Period of coverage
- Business location
- Size of the business
- Industry risks
- And more
Low-risk, home-based businesses can expect to pay less than most small businesses, however, it is prudent to shop around and ensure you have the coverage you need for the industry you’re in.
Policies may run as little as $15/mo, but some policies will be significantly higher depending on the above factors.
5 Steps for Purchasing Home-Based Business Insurance
#1: Assess Your Risks
First, evaluate your home-based business’s risks and then consider the types of insurance available.
The most common risks for home-based businesses are:
- Employee injury
- Damaged or broken equipment
- Natural disasters; and
Your industry, location, assets, and number of employees all play a role in assessing your risks.
#2: Choose the Right Type of Insurance for Your Business
Different types of home-based businesses will need different forms of insurance. For example, a home-based accountant will not need the same kind of insurance as a home-based auto-mechanic.
Covering general and industry-specific risks is important, so be sure to choose insurance that provides liability and anything that might put you at additional risk, like insurance against cyber attacks.
Many insurance providers offer insurance endorsements to your general liability policy, allowing you to customize your policy to suit your exact business needs.
#3: Compare Policies With Assistance or On Your Own
Shopping around is always wise. Most insurance providers suggest getting three to five quotes from different companies before you choose which one is right for you.
Consider the following factors as you compare insurance policies:
- Policy coverage: Know exactly what’s covered and what’s not covered. Understanding the details of the policy will help you ensure your business is getting the coverage needed.
- Price: How does one policy compare to another? Will you pay a deductible, and if so, how much? Do your premiums go up should you make a claim?
- Limits of liability: Know how much loss your policy covers. If your business is high-risk, it would be prudent to choose a policy that won’t leave you covering a significant portion of the losses.
- Reviews: Check out Google and social media pages to see what other customers are saying. If a company has a lot of complaints, you might want to steer clear. You can also search for complaints made against an insurance provider on the National Association of Insurance Commissioners’ website.
#4: Purchase Insurance
You have options when it comes to shopping for your home-based business insurance.
You can purchase an insurance policy by:
- Contacting the insurance provider directly
- Hiring a broker; or
- Using an online marketplace
#5: Renew Annually
As your business grows and changes, so will your insurance needs. Review and renew your coverage annually to ensure you have the best possible policy.
Ask yourself these questions:
- Has your business faced significant growth?
- Have you made any purchases that are not listed in your current policy?
- Do you have more employees now?
- Are you happy with your current provider?
- Has your coverage been adequate?
- Can you find a similar policy at a better price?