Home-based businesses are booming, with about half of all businesses operating out of a residence. But many of these entrepreneurs are in for an unfortunate surprise in the event of an accident, interruption, or natural disaster that affects their homes — because they don’t have adequate insurance. The reality is that a standard homeowner’s policy will only cover up to $2,500 in business property. This amount may be enough to cover your computer and other equipment, but consider these other common causes for claims:
- A delivery person falls and suffers an injury while carrying a business-related package on your property, triggering medical and possible legal expenses.
- Samples, inventory, or prototypes kept in your home are stolen, or damaged in an accident.
- Your computer is stolen, resulting in the loss of business records.
- A client or employee is injured while visiting your home and requires medical attention.
- Your home is severely damaged as a result of a fire or other catastrophe, leaving you without the space and equipment to run your business and generate income.
While your homeowner’s policy will likely cover damage to your residence and some of your business property, it typically won’t cover costs for business-related litigation and court judgments if a customer or other third party files suit against you or your employees.
Filling the Gaps
Luckily, home-based business owners have some options:
Option 1: Homeowner’s policy endorsement
The least expensive way to expand coverage to meet your home-based business’s needs is to add an endorsement to your existing homeowner’s policy. This endorsement, called permitted incidental occupancies, can expand business property coverage and add liability protection up to your existing homeowner’s policy limits for certain home-based businesses. It can even extend coverage to other structures at your home that you use for business (such as a detached garage).
It is important to note that this type of endorsement will not protect you from liability for business activities that take place off-site. Therefore, this option is best suited for businesses like freelancing, consulting, and teaching private lessons, where activities take place in the home, but the home is still primarily used as a private residence. The annual premium cost varies depending on your policy’s current liability limits, but it generally ranges from $20 to $75. If you conduct business from another structure on your premises, this may cost extra. An endorsement is a simple, cost-effective solution for many home-based businesses.
Option 2: Business owner’s policy
If a homeowner’s policy endorsement doesn’t provide adequate protection for your business, consider a business owner’s policy (BOP), which combines property and general liability coverage in a single solution. A BOP can be tailored to your industry and provides sufficient protection to most home-based or traditional brick-and-mortar small businesses. With this type of policy, your business is protected against claims related to third-party injuries, loss of income due to business interruption, loss of records, data breach, and more. Generally, a basic BOP starts at $500 per year but may cost more depending on what you select for your property coverage limits, the value of your business property, where you live, and your home’s building materials. The standard limit for general liability coverage is $1 million, but it can go as high as $2 million.
Coverage options, limits, and costs can vary depending on the nature of your business and the insurer you select, so be sure to contact your independent agent for guidance.
Protecting and Investing in the Future
So you’re a home-based business owner and you’re not sure what level of coverage you need? You can start by asking yourself a few simple questions:
- What’s the worst that can happen? Meaning: What’s your exposure? What kinds of costs could you be liable for given your operations, expenses, and environment?
- How much is my business worth? If you’re a sole proprietor bringing in $50 a week, you might not worry if your merchandise or business equipment is lost or damaged. But if you and your family begin to rely on your business income, it becomes crucial to ensure that your investment, hard work, and future will be protected.
- Are there other parts of my business I need to cover? If your business has employees, your state most likely requires you to have workers compensation If driving is a job responsibility for you or your employees, commercial auto coverage can help protect your business behind the wheel.
If you think your business might need additional insurance coverage, have a conversation with your independent insurance agent to find out what options are available now—and as you grow. To learn more, visit Liberty Mutual Insurance’s small business page.
*Liberty Mutual Insurance is the #1 preferred business provider based on 2016 survey of business insurance buyers on preference of national carriers sold via independent agents.
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