Home-Based Business Insurance, Explained

What is home-based business insurance?

Home-based business insurance is usually a package of business insurance policies designed to protect you and the business you run out of your home.

It can cover the financial losses in case someone files a claim against your business.

This type of insurance can help cover the costs of problems similar to the following:

• A client is injured on your property and you are found liable for their medical expenses.
• Your business equipment is destroyed by water damage.
• You accidentally damage a client’s property while providing a service and are found liable for the repair costs.
• You are sued for professional negligence and are required to pay for legal expenses.
• You are unable to operate for an extended time due to hurricane damage, resulting in lost income and other expenses.

Without home-based business insurance, you could be personally responsible for covering these costs yourself.

Since home-based insurance isn’t a specific type of coverage, you’ll likely need to combine several types of insurance to cover all the risks. Common policies include general liability insurance, which protects you from claims related to customer injury or property damage, and business property coverage, which covers losses or damages to your workspace and equipment.

Ultimately, the type of home-based business insurance that you need depends on the type of business you run and the risks you face. We’ll explain the different types of insurance and the risks they cover later on so you can decide what is necessary for your business.

Homeowner’s insurance vs. business insurance

Homeowners insurance and business insurance are two very different types of plans. Homeowners insurance generally offers coverage for a single-family home, such as liability protection and damage to the homeowners’ personal property and possessions. In contrast, business insurance protects business assets, employees, and owners.

Both homeowners and business insurance policies offer coverage for items that may get lost or damaged in a fire or natural disaster, and coverage may include similar language in their respective policy forms.

In some cases, an endorsement on your homeowners insurance can provide additional coverage for your home-based business. Endorsements can come in various forms, ranging from comprehensive coverage against property damage due to fires or other disasters to more personal liability protection, such as a customer getting injured while visiting your home.

For businesses with potential liabilities that exceed minimal levels, these endorsements to homeowner policies may not be sufficient, and special home-based business insurance is necessary.

Types of home-based business insurance coverage

You can find the most common types of home-based business insurance and what they include below.

The coverage you should get for your business depends on several factors, such as the size of your business and its risks.

Commercial general liability

Commercial general liability (CGL) protects your business from claims of bodily injury, property damage, and personal injury that arise from your business operations, products, or services.

If a client gets injured on your property and sues you, this insurance can cover the medical expenses and legal fees. On the other hand, this type of policy typically won’t cover the costs associated with injuries to you or your employees.

Business property insurance

Business property insurance covers the cost of repairing or replacing the physical assets and property that your business owns or leases, such as equipment, furniture, inventory, and supplies. It helps protect your business from financial loss if these assets are damaged or lost due to unexpected threats, such as fire, theft, vandalism, and natural disasters. For example, if someone breaks into your home and steals your work computer, business property insurance will cover replacing it.

Professional liability insurance

Professional liability insurance, or errors and omissions insurance, protects your business against negligence and misrepresentation claims. It covers the costs of legal fees and settlements if a client claims negligence, errors, or mistakes in your professional services. This type of policy is essential if you provide professional advice or consultative services.

Workers’ compensation

This type of policy covers employee medical costs and lost wages due to a work-related injury or illness. All states but Texas require you to have workers’ comp if your business has one or more employees. Even if you don’t have employees, you can still purchase this type of insurance to protect yourself if you get injured on the job.

Cyber Liability Insurance

Cyber liability insurance protects businesses from online threats, such as data breaches, viruses and malware. It can cover the costs associated with notifying customers of a breach, restoring lost data, or revamping security measures — all important considerations when running a home-based business.

Commercial auto insurance

This type of policy covers the costs associated with third-party bodily injury or property damage arising from an automobile accident.

These claims may not be covered by a personal auto policy if you’re using a vehicle for business purposes. Therefore, if you regularly use your vehicle for business purposes, such as making deliveries or transporting clients, you need a commercial auto liability policy to protect yourself from personal and financial loss.

What is covered by home business insurance?

Home business insurance can protect against many financial risks that come with running a business from your home.

A comprehensive home business insurance package will typically provide coverage for the following:

• Bodily injury and property damage that your business may be responsible for
• Your business property, including your equipment, inventory, and supplies, in the event of damage or loss due to an unforeseen event.
• Lost income if your operations are interrupted due to a covered peril, such as a natural disaster.
• Errors, omissions or negligence in your professional services.
• Injuries or illnesses suffered by employees while on the job, including medical expenses and lost wages.
• Damages due to a cyber-attack, data breach, or other technology-related issue.

The specific risks covered by your home business insurance will depend on the types of coverage you purchase. To have absolute coverage, you need to get various types of insurance. If you’re unsure what type of coverage you need, an insurance professional can help you understand your options and requirements.

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What is not covered by home-based business insurance?

Home business insurance will typically not cover any damage to personal property that isn’t used exclusively or primarily for business purposes. For losses related to personal property, you would need to turn to personal insurance, such as homeowners insurance or personal auto coverage.

Home-based business insurance may not cover employees nor property that is used or transported off-site. In this case, you would need special coverage like workers’ comp and inland marine insurance.

What home business insurance does and does not cover ultimately depends on the types of policies you purchase. This is why it’s important to consider all the potential risks your home business faces so you can purchase the necessary types of coverage.

How much does home business insurance cost?

Most insurance companies offer basic policies starting at $200 to $500 per year.

However, if your business poses a risk to the public or has expensive assets or multiple employees to protect, you may find higher rates averaging around $1,200 to $2,500 annually.

The cost of home-based business insurance can vary significantly depending on the type of business you have and your individual coverage needs. For example, a freelance writer would likely pay less than a home-based daycare service.

The following factors impact how much you will pay for home business insurance:

• The size of your business
• Your location
• The type of work
• Your income
• Insurance claim history

Ultimately, selecting appropriate coverage for your business is essential for protecting it from potential risks, so get quotes from different providers to access the most competitive premium.

Types of home-based businesses that may need insurance

Proper insurance is vital for running any company, including a home-based business.

That said, each type of home-based business requires different policies to cover all their needs.

For example, contractors often carry business insurance to protect their tools and materials. Likewise, handypersons can get coverage for property repairs due to damage or natural disaster.

Photographers need less protection than some in riskier industries. However, coverage can still protect against the costs of liability and damage caused while using expensive camera equipment.

Home-based businesses that specialize in online transactions may also require e-commerce insurance.

On the other hand, home-based estheticians and salon owners likely need to carry policies that cover liability stemming from treatments, as well as coverage to protect the clients’ valuable belongings and on-site beauty products. An e-commerce business should consider insurance to cover inventory storage.

Tips for buying home-based business insurance

Because many types of home-based business insurance are available to suit different needs, it’s important to understand which coverage is right for you and how much it may cost.

Follow these tips to make an informed decision when buying your home-based business insurance:

• Consider your needs. Evaluate your current business operations and identify potential risks.
• Compare multiple quotes. Use a service like the LA Times’ comparison tool to gather quotes from multiple insurance companies and evaluate pricing and levels of available coverage.
• Balance coverage limits and deductibles. Carefully consider how much of each type of coverage you need to protect your business. Additionally, evaluate how much you’re willing to pay in deductibles. Higher deductibles mean lower premiums, but you’ll have to pay more upfront in the case of an incident.
• Look for bundling discounts. Consider bundling policies for greater value. You could get discounted rates with a package deal that includes general liability, commercial property, professional liability and workers’ compensation coverage.
• Read the fine print. Review policy language carefully and make sure you understand all the details to avoid surprises down the line. Pay close attention to policy exclusions or limits in coverage amounts.
• Understand legal requirements. Research relevant state laws and regulations for home-based businesses. Certain requirements may influence which types of coverage you choose and how much it will cost overall.
• Work with an insurance agent. Ask questions about any confusing terms or clauses so there are no misunderstandings when it comes time to file a claim with the insurer.

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Do I need home-based business insurance?

If you operate a business from within your home, you may need to get home-based insurance because neither homeowners’ nor renters’ insurance will protect it in most cases.

Whether or not you need home-based insurance depends on various factors, such as the type of business, number of employees, and risks involved.

Consider these questions when evaluating if you should get home-based business insurance:

• What type of business do you have? Some businesses face greater risk than others due to their industry and operations. If you are in a high-risk industry or are exposed to significant financial or legal liability, consider getting home-based business insurance.
• Does your business face any unique risks? Are you responsible for any tools or business equipment used by employees or contractors? Do you transport products or items related to your business? Do you have customers visiting your home office? If you answered “yes” to any of these questions, investing in a home-based business insurance policy is likely necessary.
• How many employees do you have? All states but Texas require employers to have workers’ compensation. Even if your state doesn’t require it, workers’ comp is still a good idea to ensure medical costs and lost wages for work-related injuries and illnesses are covered for your employees.
• Do clients visit the property to conduct business? If so, you may need general liability coverage to protect against any injury claims.
• Does the business require a vehicle? If you use your vehicle for business operations, consider adding a commercial auto insurance policy to cover any damages caused by an accident.
• Does your business store personal or financial client information? If your business digitally stores sensitive customer data, consider getting cyber liability insurance to cover a potential data breach or security incident.

What is a home business insurance endorsement?

If you have a small business, you can often add an endorsement to your homeowners’ insurance policy to get extra coverage without taking out a stand-alone business insurance policy.

These endorsements can be an excellent way for small home-based business owners to add a small amount of coverage for minimal cost. Such benefits include increased liability protection or additional living expense coverage if the business forces you to leave your home due to covered damages.

While this optional coverage may be suitable for covering small operations, you will probably need to take out business insurance if you have a larger business or need specialized coverage.