Is Your Home-Based Business Underinsured?

A home-based business owner conducts an online meeting.
| 04.28.22
Sarah Prais

Many people with an entrepreneurial spirit opt to run a business from their home instead of working in a typical office or store. The transition to home-based businesses has occurred in tandem with the changes that have taken place with the pandemic. As these entrepreneurs continue to run their businesses from home successfully, it’s important to consider protecting the business and its employees. In recent years, 44% of home-based business owners either don’t have commercial insurance or don’t know what their insurance covers.

If you own a home-based business, do you have home-based business insurance? And if not, should you purchase it? The answer, of course, is yes.

Does Your Homeowners Insurance Policy Cover Your Home-Based Business?

Knowing the difference between business insurance policies and homeowners insurance can prevent your business from being underinsured. It makes sense to think that if you already have a homeowners insurance policy, anyone that enters your home is essentially covered, right? A homeowners policy will only protect you to a certain point. In fact, more than half of home-based business owners are underinsured! Many believe their businesses are already covered with just a homeowners policy, but this is not the case.

Business insurance for home-based businesses will best protect your business if you run it out of your home or you are planning to start a home-based business. Small home-based business insurance policies will cover your business and any employees.

Knowing the difference between business insurance policies and homeowners insurance can prevent your business from being underinsured.

Consider these different insurance policies to have in place for your home-based business:

  • Business Owner’s Policy (BOP). A BOP will typically cover your business covers your business property and equipment, loss of income, customer injuries, and more. It is a policy that combines property and liability coverage. For your home property, as it pertains to business, a BOP covers the portion of your home you exclusively use for your business.
  • Business Property Insurance. What type of equipment do you use to run your business? Are you using desktop computers, laptops, printers, and fax machines? You will want to insure those expensive items in case they get damaged or stolen. A homeowners policy doesn’t cover these business items if a fire or a flood were to damage your home and that business property. This is covered in a BOP or can be purchased separately. As with a BOP, talk to your insurance company about what portion of your home may be covered.
  • General Liability Insurance. This is an essential type of insurance to consider purchasing as it typically covers your business from being held liable for any damages caused by another person or property. A homeowners policy would not protect you if someone were to file a claim against you if they are injured in your home-based business. While General Liability coverage is included in a BOP, it can be sought as a separate policy.
  • Professional Liability Coverage (Errors and Omissions). This type of insurance will protect you against claims of negligence or failure to deliver made by your clients or customers. If your home-based business includes consulting and giving advice like a financial consultant or designer or requires professional licensing, you’ll want to protect your business with professional liability insurance.
  • Product Liability Coverage. If your business makes or sells a product to the general public, this is a policy to consider purchasing. It will typically protect your business from damages to property or an individual caused by a product you designed and sold.
  • Cyber Insurance Coverage. If your business has a website or communicates via email, you’ll likely want a cyber insurance policy to help you deal with the results of a cyberattack. You may think your risks for a cyber-attack event are very low, but over half of all cyberattacks are targeted against small and mid-sized businesses.
  • Hired and Non-Owned Automobile Coverage (HNOA). Your car insurance policy will not cover injuries or property damage caused by your personal vehicle when you use it for business purposes. While a commercial auto policy is what you’ll want if your business technically owns the vehicle, if it is your personal car, then you’ll want the coverage of a hired and non-owned automobile policy. This policy is important if you deliver products or meet clients outside of your home. If you get in a car accident, HNOA covers the damage to the other vehicles involved and any medical costs for injuries if you’re at fault. Your personal car insurance only covers your own car.
  • Workers’ Compensation Coverage. While many home-based businesses are solopreneurial operations, as soon as an employee is hired, even part-time, workers’ compensation coverage needs to be considered. It is important to understand where workers’ compensation is a state law requirement.

Now that you are armed with insurance policy recommendations, you can ensure your home-based business is fully protected. You’ll have peace of mind knowing that your business, products, and employees are correctly insured. No one wants their business to be underinsured in today’s age—there is simply too much at risk. To maintain a successful and safe business out of your home, purchasing the right insurance policies is a great start!

About the Author

Sarah Prais is a content creator who enjoys blogging on a myriad of topics both professionally and personally. She loves spending time with her crazy dog, and watching anything on Shudder with her fellow horror fan—aka boyfriend.