What Is Home-Based Business Insurance?

What Is Home-Based Business Insurance?

Home-based business insurance is a collection of coverages you might need if you operate a business out of your home. Some home-based business owners rely on their personal homeowners insurance to provide basic liability and property protection. But homeowner policies don't cover professional liability, cyber threats, business vehicles or business property losses above a designated threshold (typically $2,500). In some cases, operating a business from home can invalidate your homeowners coverage.

Working through insurance needs is a good exercise for nearly all home-based entrepreneurs. Whether you can get by with existing homeowners or renters coverage, need additional endorsements to your current policy or require separate business insurance, understanding your insurance needs—and ensuring your business is covered—helps you protect your business against potential losses.

Types of Home-Based Business Coverage

Each home-based business needs a unique mix of coverage. Although home-based business coverages can be industry-specific, basic types of business coverage include the following.

General Liability

General liability coverage protects you from claims for personal injury, libel, slander and damage to other people's property. As a home-based business owner, your general liability risk may be relatively low, which may be reflected in a lower premium cost.

Professional Liability

Professional liability, sometimes known as errors and omissions (E&O) insurance, protects you against a client lawsuit for negligence or malpractice. Professional liability insurance covers your legal costs whether or not you're at fault. This coverage may be appropriate if you offer professional services or advice to clients, for instance as an accountant, attorney or IT professional.

Business Owner's Policy

A business owner's policy (or BOP insurance) provides both general liability coverage and commercial property protection for your business equipment. BOP insurance may also include business interruption coverage.

Business Personal Property (or Commercial Property)

Business personal property insurance covers inventory, tools, equipment, furniture and other items used in your business. For home-based business owners, this list typically includes items that would not be covered under your regular homeowners insurance, which often limits business personal property coverage to $2,500.

Business Interruption

Business interruption insurance provides replacement income when your business experiences a covered loss, such as a fire. If your business has to pause operations, business interruption coverage helps to pay your bills and continue operations until you can resume your normal business.

Business or Commercial Auto

Business auto insurance covers liability and damages for vehicles owned by your business or driven as part of your business operations. You may need business auto insurance if you use your personal vehicle to do gig work, transport clients or travel to and from work sites (as for plumbers).

Cyber Insurance

Cyber liability insurance protects your business against losses that may result from data breaches, ransomware attacks or phishing scams. If you're in the tech industry or if your business has a website, accepts payments or stores customer data (especially payment or personally identifying information), cyber insurance can help cover the costs of notification and data recovery, replace lost income and even help defend against regulatory claims.

Workers' Compensation

Many states require businesses to carry workers' compensation insurance for their employees. Check with your state's department of labor to see if this requirement applies to you.

How Much Is Home-Based Business Insurance?

The cost of home-based business insurance varies depending on the type(s) of insurance you need, the size of your business and your claims history. Adding an endorsement to your homeowners policy is typically the least expensive option. According to the Insurance Information Institute, adding $2,500 of property coverage to an existing policy starts at around $25 a month.

For quick reference, the average monthly cost for a separate business owner's policy is $57, according to data from online insurance marketplace Insureon. The average cost of professional liability is $61 per month; commercial auto insurance is $147 monthly; and cyber liability insurance is $145 per month. These are average small-business premiums: A home-based business with no employees and minimal risk might cost significantly less to insure.

To save money on business insurance, choose your coverages carefully. You may be able to lower your premium by shopping for the best price, bundling your policy with your existing homeowners or renters insurance, or by raising your deductible.

Do You Need Home-Based Business Insurance?

Your home-based business may need insurance if your homeowners or renters insurance policy doesn't protect you against important business-related risks. If any of the following are true, business insurance might be worth exploring.

• You meet with clients at your home.
• You have employees.
• You offer professional advice or services to clients.
• You have more than $2,500 in tools, business or computer equipment, or inventory.
• You need to replace lost income so you can continue your business after suffering a covered loss.
• You or an employee drive your personal vehicle for business.
• Your business owns or leases a vehicle.
• You sell online or store client data, especially payment or personal identifying information.

How to Get Home-Based Business Insurance

Start by zeroing in on the specific coverage(s) you want and get multiple quotes from different carriers. Here are a few actions to consider.

Contact Your Homeowners Insurance Company

Your current homeowners or renters insurance company can help you understand what your existing policy covers and identify any gaps that may exist. They can advise you on whether it's possible to add endorsements to get the business coverage you need instead of purchasing a new business policy. Contacting your insurance company also gives you the chance to confirm that your business activity doesn't invalidate your homeowners policy.

Get Direct Quotes

Business insurance companies can tailor a package of coverages to fit your needs and industry. Get instant quotes online by answering a series of questions, or discuss your needs by phone or chat.

Use an Online Marketplace

Instead of contacting individual insurers, use an online marketplace to get quotes from multiple companies in one place. An online marketplace saves you the trouble of contacting insurers individually and may connect you with options you wouldn't find on your own.

Work With a Broker

Sometimes working with a live human cuts through confusion. Independent insurance brokers represent a variety of providers, so they can often find you a range of options at competitive prices. If you aren't sure what your needs are, an expert broker can help you sort coverages out and can help you adjust coverage as your business grows.

You've Got It Covered

Insuring your home-based business may cost money, but it also provides peace of mind amid the day-to-day hustle of running a business. Understanding the risks your business faces and finding insurance to help protect against them can free up the anxiety centers of your brain. Instead of worrying what might happen, you can focus on growing your business.