Did you know that home insurance doesn’t cover business-related claims?
Instead, you may need home based business insurance.
Running a home-based business is becoming more popular than ever, with approximately 19 million people in the U.S. taking advantage of the convenience of working from home.
But one of the biggest misconceptions about home-based businesses is that they don’t need insurance.
Just because you don’t have a warehouse or physical storefront does not mean you don’t need home business insurance. The truth is, whether your business is online-only, home-based, or mobile, insurance is an important part of protecting your financial future.
In this guide, we’ll explain why your homeowner’s insurance isn’t enough and what you need to know about insuring a home-based business.
Homeowners Insurance Isn’t Enough
Many home-based business owners believe that—since their business is located within their home—business claims will be covered by their homeowner’s insurance. However, that’s simply not true.
Homeowners insurance is designed to protect your personal property and residence, it does not offer coverage for most business activities.
It doesn’t matter if you sell handmade goods through an Etsy shop or you’re running a dropshipping business from your home. Home insurance will likely not cover your business property, lost income, or liability related to your business.
Here are a few examples where homeowners insurance falls short for home-based businesses:
- Business-related damages: If your laptop or inventory is damaged or stolen, it may not be covered under your personal policy.
- Liability claims: If a customer gets hurt using your product, you could be sued, and homeowner’s insurance won’t help.
- Loss of income: If your business has to shut down temporarily because of damage to your home, your lost business income isn’t covered by a homeowner’s policy.
As these examples show, relying solely on your homeowner’s insurance can leave your business vulnerable to significant risks.
Types of Insurance Home-Based Businesses May Need
Each home-based business is unique, which means your insurance needs will vary depending on your business’ equipment, liability, and other factors. Here are some common types of insurance to consider:
- Commercial Property Insurance: Protects your business equipment and inventory from damage or theft.
- Errors & Omissions Insurance: Also known as professional liability insurance, this covers mistakes or negligence related to your services that could cause financial loss to clients.
- Cyber Liability Insurance: If your business operates online or stores customer data, this insurance protects you from data breaches and cyberattacks.
- Commercial Auto Insurance: If you use a vehicle for business purposes, you’ll need commercial auto insurance, as personal auto policies may not cover business-related incidents.
By tailoring your coverage to your specific business risks, you can ensure that you’re fully protected no matter what comes your way.
What to Consider When Insuring a Home-Based Business
Regardless of whether your business earns $500 a year or $500,000, it’s crucial to have the right insurance to protect your income and assets.
Here are a few key factors to keep in mind when considering home based business insurance:
1. Business Structure and Liability Protection
The first thing to consider is how your business is structured.
While sole proprietorships are easy to set up, they may expose you to personal liability if your business is sued or faces debt. Establishing a Limited Liability Company (LLC) or corporation can help shield your personal assets, like your home or car, from business-related claims or lawsuits.
Consult with an attorney to find out what structure is right for you.
2. Adding an Endorsement to Your Homeowners Policy
If your home-based business is small—such as selling a few homemade items each month—you might be able to add an endorsement (also known as a rider) to your current homeowners policy.
This is a cost-effective way to get some additional insurance coverage without purchasing a full commercial policy. However, this option is generally only suitable for very low-risk businesses and may have coverage limits.
3. Business Owners Policy (BOP)
For small businesses that need a bit more protection, a Business Owners Policy (BOP) is a great option. A BOP typically covers:
- Property damage: Protection for your business equipment and inventory.
- Business interruption: Covers loss of income if your business is temporarily unable to operate due to a covered event.
- General liability: Offers protection against claims involving bodily injury or property damage.
While a BOP covers many of the basic risks, it’s important to note that this is not the only home based insurance you will need. There are a plethora of risks that are not covered by a BOP. A local independent insurance agent can provide the guidance and advice you need to identify (and insure) your biggest risks.
Protect Your Business and Your Financial Future
If you’re uninsured or underinsured, a single claim has the potential to wipe out your savings and put you out of business. That’s why it’s essential to have the right insurance in place to protect your income, assets, and future growth.
While insurance may feel like just another expense, the peace of mind it provides is invaluable.
Working with an independent insurance agent can help you find the right coverage at the right price. An agent will evaluate your unique business needs and recommend the best combination of policies to keep your business secure.
Don’t leave your financial future to chance—take the time to review your coverage today.
Conclusion
Running a home-based business offers many benefits, but it also comes with unique risks that need to be addressed through proper insurance coverage. By understanding the limitations of your homeowners insurance, and exploring other types of business coverage, you can safeguard your business and financial future.
Ready to make sure your home-based business is fully protected? Contact Harry Levine Insurance today to speak with an expert who can guide you through the process of insuring your business and finding the best policies for your needs.