If you’re like the 38 million American entrepreneurs who run their businesses out of their homes, it’s important to understand what types of business insurance you need.
From protecting your business assets to clients visiting your place of business (AKA, your home), the right coverage could save your home business from closing its doors forever. But like most things small business, insurance isn’t easy to navigate.
And if you’re not sure what types of insurance your home-based business needs, you’re in the right place. In this article, I cover the different types of business insurance and why you may need them in different situations.
So, let’s dive in!
The Short Answer… It Depends
If you’re a solopreneur running a digital business, you may not need any additional coverage. But, if you run a daycare, hair salon, or consulting business out of your home, homeowner’s insurance won’t cover everything related to your business.
So, the straightforward answer is there’s no simple answer. However, there are a few questions you can ask yourself that may help you decide what types of business insurance you need for your home-based business.
These questions include:
- Do you have clients or customers who come to your home?
- Do you offer professional services?
- Does your business sell physical products?
- What’s the value of your business property?
- Do you have company vehicles or use your own vehicle for business?
- What happens to your business if something happens to your home/business property?
If you answer yes to any of these questions, you have very valuable business property, or your business can’t operate if something happens to your home, you should consider investing in some type of business insurance.
But the type(s) of insurance business owners need depends on the type of business they run.
Homeowners Insurance Isn’t Always Enough to Protect Your Home-Based Business
Your homeowner’s insurance policy covers your home when it’s used as a home, not necessarily when it’s used as a business. So, besides contemplating business insurance, also talk to your insurance agent and let them know you run a business from your home.
Sometimes, failing to let them know can void your homeowner’s insurance policy altogether.
Most homeowners or renter’s insurance policies have relatively low limits that won’t cover anything you use for your business.
So, if you use expensive equipment for your business (i.e., computers, tools, etc.), you need a business policy with higher coverage limits. Unless you don’t mind replacing your business equipment out of pocket.
Now, let’s look at the unique insurance your home-based business may need.
1. General Liability Insurance
General liability insurance protects your business if someone gets hurt at your place of business (your home), or your work results in third-party property damage/bodily injury.
Example 1:A client trips over your coffee table and breaks their wrist. Your homeowner’s insurance policy won’t cover this since it’s a business-related activity. But your business is still liable for covering your client’s medical bills.
Example 2: Pretend you own a small landscaping business. While mowing someone’s property, one of your employees runs over a rock with the lawnmower. That rock ends up shattering one of their windows, so the small business owner is liable for paying to fix the window.
In both examples, general liability coverage helps your business cover the expenses owed. So, if clients visit your home or you frequently work on other people’s property, carefully consider buying general liability insurance.
2. Professional Liability Insurance
Professional liability insurance protects professional service providers (i.e., consultants, attorneys, freelancers, accountants, etc.) If a client loses money due to the service provider’s negligence or oversight.
Example 1: An accountant makes a minor mistake when doing the books for one of their clients. As a result, the client loses $10,000. Here, the client can file a negligence claim against the accountant regardless of whether the mistake was intentional.
Example 2: A freelance graphic designer forgets about a project he agreed to for a hair salon. Because of his oversight, the hair salon doesn’t open on time resulting in a financial loss. The salon can file a negligence lawsuit against the designer for that lost revenue.
In both situations, professional liability insurance helps pay any damages owed because of the service provider’s negligence or oversight.
Negligence claims can occur even if you’ve done nothing wrong. And they can cost hundreds of thousands to millions of dollars to defend in court. So, if you offer professional services of any kind out of your home, you should contemplate professional liability insurance.
3. Product Liability Insurance
Product liability insurance protects your business if someone gets hurt or their property is damaged because of using your products.
Example 1: Your home business sells handmade baby clothes, and one of your top-selling onesies uses buttons rather than a zipper. If one of those buttons falls off, consumers can file a product liability case against your business because a baby choked on that button.
Example 2: You sell organic supplements aimed at adults looking for a healthy way to get more of the essential nutrients they need. But one of your customers has an allergic reaction to something inside your supplements. They can file a product liability claim against you.
While both examples are of bodily injury, product liability insurance also helps cover property damage claims. Without proper coverage, your business must pay for these damages owed out of pocket.
So, if your home-based business sells physical products to the public, carefully consider purchasing product liability insurance.
4. Business Property Insurance
Business property insurance helps pay for repairs and replacement of any business property you own (or rent) in case of a fire, theft, vandalism, burst pipes, loss of valuable documents, or other types of accidents.
As we talked about earlier, your homeowner’s insurance policy doesn’t cover business-related property in your home. So, it’s important to understand your coverage gaps and find a plan that covers everything you need.
Example 1: Your house catches on fire, and your business documents, laptop, and home office are all ruined. Here, a homeowner’s policy may not cover these losses.
Example 2: If someone breaks into your home and steals your computer, your homeowner’s insurance policy (or renter’s insurance) may not cover buying a replacement since it’s used primarily for your business.
In both situations, commercial property insurance helps pay to repair or replace anything that disappeared or ended up broken or stolen. Without this insurance coverage, you may have to pay to replace everything out of pocket.
So, if you use valuable equipment or store expensive business property at your home, carefully consider investing in a business property insurance policy.
5. Business Vehicle Insurance
Business vehicle insurance helps cover company vehicles and personal vehicles used for business purposes with an accident on the road. That being said, it’s important to talk to an insurance specialist to find the right coverage for your business as all plans vary in coverage.
It may be necessary if you own (or lease/hire) large commercial vehicles.
Example 1: You get rear-ended on your way back to your home office from a consultation meeting with a client. If the other driver doesn’t have insurance, you may end up paying for repairs out of pocket.
Example 2: You’re delivering products to a local business and run into someone on a bicycle. That person can come after both you AND your business, especially if your personal car insurance doesn’t cover their medical bills.
In both situations, business vehicle insurance helps pay for damages owed because of the accident and can help replace your vehicle if the other driver wasn’t insured.
So, if you own, rent, or lease company vehicles OR use your personal vehicle for business, you should consider a business vehicle insurance policy.
6. Business Interruption Insurance
Business interruption insurance helps cover lost revenue and any added expenses if a property damage claim results in temporarily closing your doors. Note: this doesn’t cover situations like COVID-19.
Example 1: Your house catches on fire, or is damaged in a natural disaster, destroying most of your business property. So, you have to temporarily shut your business down until your home is repaired, and you replace your lost property.
Example 2: Someone steals your computer. Your business can’t operate without it, so you’re forced to shut down until you get a replacement.
Either way, business interruption insurance helps cover the loss of income you would have made if your business was still operational. It can also help cover renting a temporary office-space to continue running your business until your home is repaired.
So, if your business can’t operate, if something happens to your home or business property, it’s important to consider business interruption insurance. Unless you don’t mind going without revenue until you’re back up and running.
7. Workers’ Compensation Insurance
Workers’ compensation insurance provides medical treatment to cover medical care for injured workers in addition to disability payments for lost wages from time away from work. Should the injury be more substantial, this insurance provides disability benefits, and job training should the injury prevent the employee from returning to the job they previously had. In some cases, workers’ compensation insurance is needed for both employees and independent contractors.
Example 1: Your delivery person slips while out on a route. The employee is going to be out of work for a few weeks while his hand heals and workers’ comp insurance will replace his income while he is out of work and pay for medical treatment.
How to Get Started with Home-Based Business Insurance
Now you know what types of commercial insurance your home-based business may need and that in many cases, your typical homeowner’s policy may not cover any losses to the business. And you’re probably wondering how to get started, right? It’s easy to get lost down the rabbit hole of all things business insurance (especially if you’re anything like me).
You can get business insurance quotes from a local insurance agent or use a comparison tool like Hiscox Insurance to get several competitive quotes in just a few minutes.