Business Insurance for Your Home-based Business

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Working from a home office or starting a business from your home is a wonderful way to earn income, with many added benefits that come with the title. Not only do you lose the stress of commuting to a job site, but you can also have more time with your children or partner, and you can reduce costs in many ways, such as transportation and tax write-offs such as a portion of your utilities and mobile phone bills.

Although there are many positive aspects to owning and running a business from home, it is still a business, and carries with it many of the responsibilities that any other business would carry… Insurance being one of them.

You might think that because you may carry renters or homeowner’s insurance for your home, that you can simply file a claim for your home-based business under these renters or homeowner’s insurance policies. In actuality, these policies will not cover you for your home-based business. There are many exclusions when it comes to insurance regarding home-based businesses, especially if your business is considered an “illegal” operation in your neighborhood. Additionally, if you have an auto policy on your car, it will not cover you if you use your car for business purposes.

Before starting your home-based business, you should work with an insurance professional to understand any and all need for insurance. It is better to have coverage and not need it than to need an insurance plan and not have it. There is no need to go out and purchase insurance with a $1,000,000 limit, mind you, but when speaking about putting your assets and business stability at risk, then it is best to air on the safe side.

Types of Coverage

If you run a home-based business, then your home-based business insurance cost will depend on a few factors, and you should analyze your operation to decide what insurance you will actually require.

Consider the following questions:

  • Does your business manufacture, create or supply food products?
  • Will you or do you use a vehicle for any purpose with your business?
  • Do you use any electronic equipment? Will the same equipment also be used for personal reasons?
  • What professional services will be provided? (If any)
  • Do you plan to have business visitors come to your house?

Whether you are planning to start a new online business, or even if you are already an operational at-home business, answering these questions can help you to identify what types of coverage you will need.

Business Property Insurance

Most home-based businesses will need Business Property insurance. _This insurance will protect you against losses or damages to your property (a.k.a. your home) used while operating your at-home business. _

If you happen to, for example, have a fire and your desk and computer go up in flames, then you will be covered with Business Property insurance. This type of insurance is necessary; otherwise, your work supplies would not be covered by homeowner’s insurance. You specifically will need a Business Property insurance policy in order to protect you and your business.

There are two main options regarding Business Property insurance: actual cash value, and replacement cost coverage. Generally, replacement cost coverage is the best option. Be sure to confirm with your insurance carrier that your electronics are completely covered under your policy.

Although actual cash value policies have lower premiums, the low settlement value after a huge loss can hurt small home businesses.

Liability Insurance

In the event that your business is liable for damages caused to another business, person or property, liability coverage will have you covered.

Since your renter’s insurance or homeowner’s policy will not protect you from any claims made by injured business visitors, this type of Business insurance is imperative if you plan to have visitors visit you at your home.

Visitors that can be considered “business visitors” include delivery persons or couriers who may slip and fall, or parents of children if you run a childcare business, for example.

Professional Liability or Acts Coverage

This coverage is exactly that same coverage that is held by professionals who work from an office. It is equally as important to maintain this coverage and avoid to any gaps in coverage.

If you are moving from an employment position to a home-based business and your previous employer had provided Professional Liability insurance, then you will need to make sure you secure coverage before your previous policy ends.

This may even include a time of coverage where you will not be physically working (maternity leave), but it will be less expensive in the future if you can prove no gaps in coverage.

Product Liability Coverage

If you supply, design or manufacture products, then you will need to have Product Liability coverage. This coverage protects you from damages done by any products your company has produced.

Commercial Auto Insurance

Personal auto policies do not cover business vehicles. This means that if you or an employee are making deliveries, visiting clients, picking up packages or using your car for any business-related purposes and you get into an accident, your personal auto policy will not cover you.

There is never a reason to avoid a Commercial Auto policy as they are generally inexpensive, albeit extremely necessary.

Other Coverages to Consider

Due to the fact that the number of home businesses is growing, many insurance companies are offering coverage as a rider on homeowner’s policies. There are even some insurers offering home and office combination policies.

These riders or combination policies are not always the most economical. Therefore, you should speak with a professional to decide which is best for your company.

Be aware that some policies will offer you less coverage and are purposefully (deceitfully) packaged together only to seem convenient. Always make sure your small home business insurance complies with all regulations, as well as health codes, laws and statutes. If you do not confirm this, your coverage may be voided. Additionally, if you have employees, you may need worker’s compensation coverage as well.

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Types of Small Home Business Insurance: Needs and Risks

There are many types of home-based businesses, each with different types of business insurances required in order to be covered properly.

Daycare Businesses

Home-based daycare businesses most definitely need General Liability insurance. This is also known as “slip and fall” insurance due to the fact that it protects you in the case of someone being injured who is not connected to your business.

For example, if a child breaks their arm by falling off of a swing, even if the child was supervised and the area is safe, a parent may attempt to hold you responsible for the costs associated. If you have good general liability coverage, this will protect you from having to pay substantial out-of-pocket costs, as you will be covered.

Running a daycare also requires a lot of supplies. Supplies may include computers, speaker systems or other expensive technology. Every day that there are children running around, you risk property damage. With general liability, you will be covered in the event that a child knocks down a television or spills their juice on a laptop computer.

Specifically, if you are offering in-home daycare services, you should have Errors and Omissions insurance as well, which is also known as either Malpractice insurance or Professional Liability insurance. This type of insurance is designed to protect you against an employee mistake or even parent misunderstanding of your service.

Home daycare insurance costs should never be the reason in which you do not have coverage. On average, child care insurance providers should expect to pay between $250-500 per year. If this sounds expensive, try to put it in perspective to the cost of a lawsuit if you are not covered and happen to be sued.

Food Businesses

Home-based food businesses require insurance that covers both normal business risks as well as risks only affecting food vendors. Possible risks include food-borne illnesses, spoilage due to equipment breakdown, as well as the loss of expensive or essential assets due to theft or vandalism.

  • Injuries: If you have customers coming to pick up food at your home then you will need general liability coverage in case you are sued.
  • Food-borne illnesses: Customers might report food poisoning after consuming an undercooked product that you supplied them with.
  • Theft and vandalism: Once again, property damage will be covered by general liability if you need to replace your supplies after someone steals or vandalizes them.
  • Auto accident: For a home-based food business that offers delivery service, you will need to have Commercial Auto insurance. This is true if you or an employee is responsible for an accident that results in another person’s bodily injury or property damage while driving a company car.
  • Fire damage: In case of the need to replace supplies due to a kitchen fire, General Liability insurance will have you covered.
  • Business interruption: If you experience an equipment breakdown, theft, or a claim that prevents normal business operations, Business Interruption coverage will help you to maintain your income while you are unable to operate your business.

Generally, insurance costs for a home-based food business range from $250 to $1,000 per year.

Craft Businesses

If you are looking to start a home-based craft business that consists of making necklaces or any other manufacturing and vending of crafts, then you will definitely need business insurance.

If you happen to be on your way to a craft show to sell your goods and you get into an accident, your vehicle will not be covered under your standard auto insurance policy. In this case, you will need Commercial Auto insurance.

You may run into the unfortunate situation where you lose inventory due to a fire, or tools in the event of a basement flood. Your homeowner’s insurance policy will not cover this, so make sure to have an insurance policy that will cover your tools, equipment, as well as inventory damage.

Although home-based craft businesses carry less risk than retail stores, you should still carry insurance that covers business liability. This means that if anyone is hurt due to any aspect of your craft business, your insurance will cover that situation. This could mean someone chewing on a necklace you manufactured and swallowing a bead, or having an allergic reaction to the glue in the birdhouse you sold them. Either way, you will be covered as long as you have the right Craft Business insurance in place.

Freelancing vs Home-Based Business

There are a few main differences regarding freelancing and running a home-based business and what you will need regarding business insurance for home-based businesses.

Freelancing is generally considered a part-time job, but in some cases, it can be full-time as well. Some basic homeowner’s and renter’s policies actually cover a very small amount of business property at home. This coverage is extremely limited but may cover a laptop, hard drive or camera equipment. Some freelancers have minimal equipment (such as only a laptop and mobile phone), and therefore they may not need an additional policy.

It is important to remember that home insurance does not cover loss of business income or lawsuits related to your home business. Therefore, for home businesses, there is generally a larger risk involved than with that of freelancing, and more coverage might be needed if you choose to operate a home-based business...

If you are freelancing simply with a laptop or a few pieces of equipment, you might only add on a rider to your home insurance to increase your policy coverage. If you are running a business that is more than just you and your laptop, you might consider yourself a home business and require much more coverage. This need is definitely based on what type of business you are running and how much risk you carry.

Find the Best Coverage for Your Business

There are many benefits of building your business in the comfort of your own home; that much is certain. Being closer to family, making your own dress code and avoiding the rush-hour traffic are just a few examples.

No matter what line of business you are in, it is important to have a policy that protects your company in the event that your house comes crumbling down. Insurance policies can be tricky when you start to mesh coverages together from a home and business policy. For this reason, it is important to work with experienced professionals who have dealt with these situations before.

What's Next?

At CoverWallet, we understand that you want to focus on building your business so that you don’t have to worry about insurance disputes. Contact us today to find the coverage that best fits your business!

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