Does a Home-Based Business Need Business Insurance?

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With no commute or dress code, working from home has plenty of perks. But whether you run a home-based business or work for someone else, there's one downside to working at home: Your homeowners insurance may not cover certain risks. What happens if an employee or client is injured in your home? Will homeowners insurance replace your business equipment if it's stolen, damaged or destroyed? You may need business insurance if you work from home, but the specific coverage that's best for you will vary depending on your situation.

How to Know if Business Risks Are Covered

Homeowners insurance generally doesn't cover the risks you may face if:

  • You have employees (even if they don't work in your home)
  • You maintain inventory either in your home or offsite
  • Clients, customers or vendors come to your home
  • You keep sensitive data (such as customers' credit card numbers) on your computer

To find out whether your homeowners insurance covers your home-based business, ask your insurance company. An agent can review your policy and explain any gaps in your coverage that might put you at risk.

If you're an employee who works remotely from home, employer-provided equipment may be covered by your employer's insurance; ask your boss to make sure. And if you use your own computer or other equipment or have visitors to your home as part of your job, contact your homeowners insurance company to find out if your property and liability coverage extends to this situation. In the event your policy doesn't cover these items, consider getting an endorsement to your homeowners policy (more on that below). Your employer may be willing to pay for it.

What Kind of Insurance Do You Need for a Home-Based Business?

Depending on your situation and coverage needs, you generally have three options for home business insurance:

  1. Add an endorsement to your homeowners insurance to cover business property and liability. Most homeowners insurance policies limit coverage for business equipment to $2,500. If your equipment is worth more than that, see if you can add an endorsement to increase the coverage. Doubling your coverage can cost as little as $25, according to the Insurance Information Institute. You may also be able to get a homeowners liability endorsement that covers you if someone is injured in your home during a business-related visit.
  2. Some insurers offer home-based or in-home business policies. These generally offer more property and liability protection to your homeowners insurance than an endorsement would. For example, they may pay for lost income or protect you from liability if your product or service injures someone.
  3. Get a Business Owners Policy (BOP). Combining commercial property and liability insurance with business interruption insurance, BOPs offer more coverage than in-home business policies.

You may also need other types of business insurance:

  • Check to see if your home or auto insurance policy covers the use of your car for business—to make deliveries or sales calls, for example. If not, you may need commercial auto insurance.
  • Businesses with employees may need workers compensation insurance. Visit the website for your state's department of labor to see if this applies to you.
  • If you're in the tech industry or maintain records of customer, client or employee data, consider data breach insurance.
  • Businesses that offer professional services or advice, such as accounting or consulting, may need professional liability insurance.

How Much Does Business Insurance Cost?

The price of business insurance varies widely depending on the amount and type of coverage you buy, your industry and the risks you face. For example, a homeowners policy endorsement might be enough for a freelance writer with minimal equipment whose clients never visit the home. But a toymaker with three employees and inventory stored in the garage who frequently hosts visits from delivery drivers might need a business owners policy, which is more expensive.

To get the best price on home-based business insurance, shop around. Get quotes from several insurance carriers, comparing the same type and amount of coverage. You can also work with an independent insurance agent who can show you options from different insurance carriers.

You can lower your business insurance premiums by increasing your deductible (the amount you must pay out of pocket before your insurance covers your losses). Just be sure you don't raise the deductible past what you could easily afford if you actually need to use your policy.

Good Credit Is Smart Business

Your business credit score has the potential to affect your insurance premiums, and your personal credit may also be a factor if you haven't yet established a credit history for your business. Insurance companies in some states can use credit-based insurance scores when determining rates for homeowners insurance. Maintaining good business and personal credit is always a smart move—and could help make home-based business insurance more affordable too.