So you’re living the dream, you are the boss of your own home-based business. You’re not alone. According to the National Bureau of Labor Statistics, a whopping 3 out of 10 homeowners in the U.S. run a business out of their home. More than 20 million Americans currently work from home, and almost 70% of them are running their own business. The question is: are you one of the many who are underinsured because you believe that your homeowners insurance policy is sufficient to cover your business?
Homeowners Insurance Is Not Enough
You’ve undoubtedly had a lot to think about in setting up your business. And here’s one more thing to add to your list: if you think that your homeowners policy is enough to cover you against damages and liability stemming from your business, you’re probably wrong.
A typical homeowners policy only covers damages up to $2,500 in your home and $250 outside of it, and it only covers up to $100,000 in liability (and sometimes won’t cover anything for business-related claims). Moreover, running an undisclosed home-based business in your home might actually void some of your homeowners policy.
What Type of Policy Do You Need?
Now that you know that you need special policies for your home-based business, you’ll need to think about what type of insurance is right for your type of business. First, ask yourself questions like:
- What is the value of my business property?
- Do I have employees?
- Do I use a vehicle for my business?
- What type of risks are generated by my type of business?
- Do customers visit my home?
- Do I digitally store sensitive information?
Once you’ve considered the type of business you’re running, it’s time to consider the policies that are best for you.
Since home-based business insurance is usually a combination of different types of policies, you’ll want to carefully consider whether you might need more than one of the following types of coverage.
- General Commercial Property Insurance – protects all of your business-based tangible property against damages and events such as fire, theft, or vandalism. You may need this type of insurance if your home office equipment values more than what your homeowners policy will cover, or if you keep more than $10,000 worth of inventory in your home. Another example of someone who would need this coverage would be a landscaper or handyman, or anyone else who stores their expensive equipment on their property, even if they’re actually using it off-site. You probably do not need it if you don’t store any high-value business property at your home, or if your homeowners’ policy would cover damages (for example, if you are a freelancer and use your personal laptop to work).
General Commercial Liability Insurance – necessary for any home-based business that works with the public. If you have business-related visitors coming to your home, or if you do business with the public off-site, it is best to have at least $500,000 in coverage to protect you against any possible claims made against your business. Even if your homeowners policy will cover you, these policies will usually only cover up to $100,000. If you do not work directly with people, then you will probably not need this type of policy.
Add-ons and Packages
It is worth noting here that, if you’re running a smaller business, you have a couple of less expensive, easier options for taking care of Property and Liability insurance. It is worth looking into:
- Endorsements – if your home business generates less than $5000 in annual receipts, you may be able to add an endorsement to your homeowners policy to double your standard policy from $2500 to $5000.
In-Home Business Policy – smaller businesses should also look into these package policies, which cover up to $10,000 in property and allow you to add $300,000 – $1 million in liability coverage
For medium-sized businesses, a Business Owners Package Policy (or BOP) might be the way to go. These all-in-one packages are similar to an In-Home Business Policy in that they cover property damage and liability, but they do so on a bigger scale. Package policies can offer great value, but may not offer more specific types of coverage.
Other Types of Policies
Property and Liability insurance policies are the most common types of coverage needed by home-based businesses. However, if you have other special considerations, it is worth looking into the following:
- Errors and Omissions Insurance – needed if your business provides a professional service for a fee. When you are providing intangible services such as offering financial advice, providing personal training, or doing someone’s taxes, you will need coverage in case a client decides to sue you for damages. This type of negligence is generally not covered by liability insurance, so E&O is highly recommended. If you are not at risk from a lawsuit due to bad advice or unintentional errors, then you can probably skip this coverage.
Workers’ Compensation – if you have employees (other than yourself!), then you will need to have workers’ compensation. Check with your state’s guidelines, however, as the requirements for this type of insurance vary: for example, some states require you to have it even if you have only one employee, while others don’t. Texas does not require it at all. This type of policy provides benefits to employees if they suffer a work-related injury or illness (even if they work remotely).
Business Vehicle Insurance – necessary if your business owns and operates vehicles, and also worth looking into if you use your personal vehicle for your work. Your personal auto insurance policy may only provide limited coverage, and you may need more if you’re primarily using your car for work.
All of this may seem like a lot to digest, especially when you have so much on your plate as a business owner. If you’re feeling lost, or need advice, EZ.Insure can help. We can connect you to an agent who will answer any questions you may have. One and only one highly trained agent will be at your disposal and will guide you towards the right policy for your home-based business. Call 888-615-4893 to speak directly with one of our agents, or enter your zip code in the bar above to get a free instant quote. You will never be hounded by endless sales calls, and all of our services are always free of charge. So relax – and get back to work!