How to Insure a Home-Based Business

If you run a business from your home, one of the main reasons you probably chose to do so is because it seems more convenient and inexpensive than running it from a business office.

While that may be true, running a home-based business also comes with its fair share of pitfalls (as I am sure you have already experienced first-hand).

For one, insuring a home business can be stressful and complex.

Trust me, while writing this article, I had to consult with several of the Berry Insurance team members (both personal lines and commercial lines) to make sure I was clear on all the nuances. But not to worry, Team Berry saved the day yet again, and together we compiled everything you need to consider when insuring a home business, between making changes to your existing personal insurance policies, and obtaining commercial insurance policies to cover all your risks.

By taking the following steps and considering all the types of commercial insurance policies we mention in this article, you will be well on your way to insuring your home business with confidence.

Check/update your home insurance policies:

If you have or are starting a home-based business, the very first thing you need to do is contact your personal insurance agent, inform them about your business, and find out if you have or can get any coverage under your home insurance policy.

The first thing you need to check is whether your type of business is covered at all. Due to risks of certain businesses, some carriers won’t cover anything related to business. And in some cases, carriers will refuse to even provide you with a home insurance policy at all if you are running a business that they consider risky out of your home (such as daycares or offices that get a lot of visitors). 

So when you contact your agent, you’ll have to find out if your business would be considered a “permitted incidental occupancy”. If not, you have no business related coverage on your homeowners insurance and will have to get a full business insurance policy no matter what.

If your business is considered a “permitted incidental occupancy,” you may be eligible for some limited liability and property coverages.

Business-related liability coverage under home insurance:

Many home insurance carriers offer an “incidental business” endorsement, which allows for the liability coverage on your policy to also apply to home work, but it has some limitations.

For instance, it usually doesn’t cover you if you own the business. 

Also, if you are an employee of a company doing work at home, you will be covered under your company’s business insurance, so this endorsement really only applies to you if you are an independent contractor or 1099 employee.

If not, you will need a separate general liability insurance policy (which we will talk about more below).

Business-related property coverage under home insurance:

If your business is eligible for coverage under your home insurance policy, many carriers offer an endorsement for increased business property coverage, but likely, the maximum will be around $5,000 or $10,000. 

If your business property doesn’t exceed those limits, the business property endorsement may be enough for you, but if you have expensive business property or inventory in your home, you may need to get a separate business property insurance policy.

AND, if you need to get a separate general liability policy anyways, it may actually be cheaper to get a business property insurance policy bundled with the liability policy than to pay for the home insurance endorsement.

You probably still need some business insurance policies:

After you review your home insurance policy, you may find you have some limited business related coverages, but in most cases, it isn’t enough.

Depending on the type of business you run and the associated risks, you may need the following commercial insurance policies.

Why you might need general liability insurance:

If you don’t belong to the small group who can get liability insurance for business under their home insurance policy, then you probably need to buy a general liability insurance policy.

General liability insurance is an essential business insurance policy for any business. It covers claims made against your business from someone who experienced bodily injury or property damage. It can also provide coverage for injuries sustained from your product, claims for libel, slander or defamation, and claims filed by your employees or other 3rd-parties.

Liability insurance covers a wide range of injury, property damage and other types of scenarios that could happen at your business. Examples include:

• Injuries to someone else for an accident you cause
• Damages to someone else’s property
• Contractual liability (limited)
• Coverage for your products (limited)
• Advertising and personal injury coverage
• Pollution (optional)
• Emergency medical payments (optional)
• Electronic data/cyber liability (optional)
• Claims made against you by your employees (optional)

Depending on what type of home-based business you have, some of these coverages would never come into play for you, but several of them are probably plausible.

To learn more about general liability insurance, check out this article: What is General Liability Insurance?

Why you might need commercial property insurance:

If you can’t get enough business property insurance under a home insurance endorsement (or if you are already getting a general liability insurance policy and want to bundle to save money), you might need commercial property insurance.

Commercial property insurance protects your company’s physical assets – things like furniture and equipment, supplies, computers, inventory, customer’s goods, signs, and even lost income.

The policy will provide financial reimbursement to help recover the cost of items damaged, lost or destroyed from various incidents including:

• Damages from fire
• Damages from theft and vandalism
• Damages from storms
• Damages from explosions

To learn more about commercial property insurance, check out this article: What is Commercial Property Insurance?

Why you might need professional liability insurance:

You may think you don’t need professional liability insurance if you already have general liability insurance, but the two actually provide very different coverages. 

Unlike general liability insurance, which covers bodily injury and property damage claims, professional liability insurance (also known as errors and omissions insurance) covers claims made against your business as a result of the services you provide. Examples of these claims could be for negligence, misrepresentation or even inaccurate advice.

If you provide any sort of professional services, you need professional liability insurance to protect you from these types of claims leaving you with significant out of pocket costs.

Want to learn more about professional liability insurance? Check out this article: What is Professional Liability Insurance?

Why you might need workers’ compensation insurance:

Workers’ compensation insurance covers medical payments and a portion of lost wages for employees who become injured or ill due to work-related causes.

Whether you work in an office or out of your home, if you own a business and have any employees, you are required (at least in the state of Massachusetts) to have workers’ compensation insurance.

But even if you are a sole proprietor or independent contractor who has no employees, you might still want to consider getting the coverage.

The reason for this? If you get injured at home while doing an activity that is “work related,” your health insurance might decide not to cover.

Health insurance policies don’t include work-related injuries, so if you get injured while working and do not have workers’ compensation, you may be paying for all related medical expenses out-of-pocket.

Even a short trip to the emergency room for a few stitches could cost thousands, so it is crucial to have workers’ compensation insurance if becoming injured or ill during work operations is possible for you.

Want to learn more? Check out this article: Do I Need Workers’ Comp if I am a Remote Worker, Independent Contractor, or Sole Proprietor?

Get additional specialized policies, if they apply to you:

The insurance coverages we discussed above are the most common types of policies we issue to home-based businesses, however, if you have a specialty type of business, or an especially high-risk business you run out of your home, you may want to consider other types of coverages. 

Some of these may include:

Cyber insurance: A policy covering costs associated with a cyber attack or data breach. If you think you may need it, click here to read more about cyber insurance!

Pollution insurance: A policy protecting businesses against liability from damages or injury caused by pollutants they work with, produce, or exacerbate. Click here to read more about pollution insurance!

Commercial umbrella insurance: A policy extending limits on a business’ existing general liability insurance, commercial auto insurance, and workers compensation insurance. Click here to read more about commercial umbrella insurance!

Review/update your personal auto insurance:

So we know we’ve already overwhelmed you with insurance policies you may need to get for your home-based business, but we just have one more thing we want to touch upon.

If you ever use your personal vehicle for business purposes, whether it be picking up or dropping off work supplies, or visiting clients/professional partners, you need to review and update your personal auto insurance policy.

For one, you’ll want to double check that your existing auto coverages are up to par.

But, you’ll also want to make sure your insurance policy lists that you occasionally use your vehicle for business use. Without that label, your insurance company could decide not to cover if you get in an accident while driving for business purposes.

Time to devise a plan to fully cover your home business:

There is a lot to consider when insuring a home-based business.

As much as we tried to cover everything you might need to know about insuring your home business in this article, every business is so different, so you may still not be entirely sure which coverages you need, and what limits these coverages should have.

But that’s OK! Our advice? Reach out to an independent insurance agent (whether it be us at Berry Insurance, or another trusted broker) to learn about your existing home and auto coverages related to business, and to help you decide what commercial coverages you might need to add. They can provide you with a comprehensive business insurance quote to protect you and your business from all angles.

Almost ready to take that step? Before you do, we suggest you prepare by reading this article: What Information Do I Need for a Business Insurance Quote?

You can also click on the article below to download a worksheet that can help you prepare all the information you’ll need when you apply!