Is Your Home-Based Business Covered by Your Home Insurance Policy?

Depending on whom you ask, there are between 18 and 38 million home-based businesses currently operating in the U.S. If you’re one of them, you may have never considered how this affects your home insurance policy. 

Here’s what the most recent Independent Insurance Agents & Brokers of America (IIAA) statistics found: 

• Over 11 million American households have a full or part-time home-based business
• 58% are uninsured, and therefore vulnerable to serious financial loss
• 39% say they thought they didn’t need insurance or thought they had some other type
• of coverage
• 29% thought his/her business was too small or posed no risk 
• 19% could not provide a reason for not having insurance 

In the 2011 Entrepreneur article, “Does Your Home Business Need Insurance?” writer Carol Tice notes: 

One reason owners forgo insurance is confusion over what may be already covered by a homeowner's or a renter's policy. 

Unfortunately, typical home-based business owners have little or no coverage under their current renter’s or home insurance policy. Additionally if you filed a claim for losses on an undisclosed home business, not only may your insurance carrier refuse to cover it, they may cancel your home insurance policy. 

While your home insurance isn’t designed to cover your home business, some policies might partially cover some business uses. However, to be safe, the Entrepreneur article mentions three types of home business insurance coverage: 

Endorsement or rider. Whichever term you use, it all comes down to having a little extra insurance. This attachment to your current policy can cover things such as business equipment and “slip-and-fall” liability for small ($5,000 or less in annual receipts) businesses. This is a good precaution for someone who works at home for another employer. 

In-home business policy. For as little as $200 a year (according to the IIAA) you can insure your business property for $10,000. Coverage generally includes lost income and ongoing expenses if your business shuts down due to damage to your home. Additionally, it provides limited coverage for loss of valuable documents, accounts receivable, off-site business property, and use of equipment. 

Business owners’ policy (BOP). This type of insurance covers loss of data, general business liability, errors and omissions, and off-premises product liability in case your delivery is lost in transit. If you meet with customers or clients on-site, it protects them from accidents while on your property. It covers employees who drive a company vehicle. It does NOT cover workers’ compensation. This type of policy is available in most states and can cover businesses with gross sales of up to $3 million. 

Before you decide to operate a home-based business, get the facts. Check with your home insurance policy carrier or if you have questions about the best home insurance policy for you, contact us.