Friedman Group

Does a homeowner's policy cover your home business?

March 4, 2019

Thanks to advances in technology and the Internet, more and more people are running home-based businesses, either full-time or part-time.

But will a homeowner's policy cover the risks of a home-based business? In nearly every case, the answer is no. The only exception to this might be if a homeowner's policy has a special endorsement, such as to run a catering company from your home.

Yet fewer and fewer companies offer such endorsements. Additionally, some policies may give a very limited amount of coverage for business property, such as a computer.

According to the Independent Insurance Agents & Brokers of America, 60% of home-based businesses lack adequate business insurance.

One reason owners forgo insurance is confusion over what may be already covered by a homeowner's or a renter's policy. But most home-business owners have little or no coverage from their homeowner's policy.

What's more, if you file a homeowner's (or renter's) claim for losses sustained by a previously undisclosed home-based business, your insurer may refuse to cover it - or cancel your policy.

If you're selling stuff online and nobody ever comes to your home for business purposes, you may think you don't need coverage. But in reality you do. What if someone takes action based on information on your website, or someone is injured using a product or service you provide?

What if a delivery person shows up to deliver a business package and slips on your doorstep? If it's for your home-based business, your homeowner's policy likely won't cover your liability.

If you're doing business at home, you'd be smart to have insurance. The amount of your sales doesn't matter. The amount of the loss you could face should something go wrong is what counts.

So how can you protect a home-based business? Start by insuring your business right away. You can choose from one or more of these three basic types of insurance, depending on your business's complexity and type.

1. Rider to a homeowner's or renter's insurance policy

The most inexpensive home-based business insurance is an add-on or rider that expands a homeowner's or renter's policy to cover the company. The cost of such a rider is minimal - perhaps $100 a year - but it generally provides about $2,500 of additional coverage. 

This type of insurance may be appropriate for a one-person business without a lot of valuable equipment or many business-related visitors, and that is unlikely to suffer a major loss if unable to operate for a while as a result of fire or another disaster.

Such coverage may work, for example, for a graphic designer who works at home and does all of his business online, including delivering files. But it could leave a home-based business owner on the hook for costs such as a large medical bill for that injured delivery person.

2. In-home business policy

An in-home policy covers a broader spectrum of contingencies, including loss of critical documents or theft of funds being taken to the bank for deposit. 

An in-home policy, issued by a home insurer or a specialty firm, usually is a plan against injury or theft covering as many as three employees. Rates typically run from $250 to $500 and the plans can cover as much as $10,000 in losses.

Most serious home-based business owners may want to consider picking up at least an in-home policy, which covers business equipment and liability for injury.

3. Business owner's policy

Entrepreneurs who need more than $10,000 of coverage should pay for a business owner's policy. This comprehensive policy is what brick-and-mortar retailers, among other businesses, generally opt for.

These policies cover damage to or loss of business equipment and other assets, liability for customer injuries, loss of critical records, malpractice or professional liability claims, and loss of income or a business interruption in the case of a power outage or natural disaster.

Such a policy might also protect you when driving a personal vehicle for business purposes.

The policy protects against a higher amount of loss than a homeowner's policy rider or an in-home business policy.

The takeaway

If you're running a home-based business, you could find yourself exposed in terms of liability. And your business assets may not be covered under your homeowner's policy if there is a fire or burglary.

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