Your homeowners insurance policy may not cover your home-based business. If a business-related loss such as loss of income, loss of data, or liability occurs, you will find yourself in a difficult situation.
At Pawson, we strongly suggest discussing with your insurance agent whether your policy covers unexpected expenses related to a home-based business.
Most Common Home-based Businesses in the United States
The Small Business Administration (SBA) states that half of all businesses in the United States are home-based. The most common types of home-based businesses people establish in the United States are:
- Scientific, professional, and technical services
- Specialized services (day-care, dog walkers, tutors, etc.)
The size or type of home-based business you operate is of little concern, as one thing all home-based businesses must have is insurance.
By insuring their home-based business, they are protecting themselves against certain risks that come with business ownership.
Unfortunately, it is not uncommon to find people operating a business from home to take out an insurance policy when they encounter a problem.
Instead of waiting for an incident to occur, you need to insure your home-based business to address future problems.
Just like with any business, insuring your home-based business should be on the top of your agenda.
Are You at Risk?
The Six Types of Insurance Coverage You Need to Secure Your Home-based Business
To decide the extent of insurance coverage you require for your home-based business, assess the needs and requirements of your business. The level of coverage you take out depends on the type of home-based business you operate.
For instance, you have a home office, but your business requires you to work out of your home. In that case, you need to buy extra coverage to protect you from incidents that occur while you are working from home.
Alternatively, you need to protect your business from injury claims made by employees or clients that frequent your home or if you visit your clients’ homes. If you store sensitive data on your home computer or have documents, your insurance policy should cover you from loss of data, loss of income, and potential lawsuits. To determine the type of insurance policy you need to take out, consider the following:
- The size and type of business you operate
- The number of people who visit your home
- The chances of being held liable for something
If you have decided to establish a home-based business in Connecticut or you have already established one, but have yet to take out an insurance policy to cover it, here are six types of insurance policies you must take out:
1. Homeowners Insurance Endorsement
A homeowners insurance endorsement is a basic endorsement you can add to your current homeowners insurance policy. In doing so, it will increase your standard coverage, doubling it. It will provide business equipment such as computers with increased coverage.
By investing in homeowners insurance endorsement, you can increase your policy limits from anywhere from $2,500 to $5,000. The amount of coverage you receive differs from insurance company to company. Some may even raise your coverage to $10,000.
In addition to this, you can invest in homeowners liability endorsement. If you require liability coverage in the event your clients or employees such as delivery personnel sustain an injury while at your home, the insurance policy will protect you from lawsuit claims.
Some conditions associated with this insurance policy is that it is only available to home-based businesses that have hired employees and receive visits from clients. You should consult with your insurance company, as some insurances companies offer this coverage to tutors who tutor students at home.
2. In-Home Business Policy
An in-home business policy offers coverage for home-based businesses. This type of insurance policy covers liability and business equipment. In comparison to a homeowners insurance endorsement, an in-home business policy offers business owners improved and comprehensive insurance coverage.
Besides offering you protection, an in-home business policy reimburses you for the loss of important documents, a separate office located outside, and accounts receivable. The policy may also include loss of income resulting from a fire damage, water damage, or a natural disaster such as a tornado, earthquake, storms, and more.
Some insurance companies may even cover the expenses of utilizing a temporary location to operate a business while others might offer you protection against injuries and lawsuits resulting from the services or products you sell to your clients.
You can claim an in-home insurance business policy from an independent insurer or a homeowners insurance company. If you are opting to buy an in-home insurance policy from a specialized insurer, you do not have to buy this coverage from your homeowners insurance company.
3. Business Owners Policy (BOP)
Business Owners Policy (BOP) is designed for small to medium sized businesses. If you operate your home-based business from more than one location, you can take out a business owners policy. Similar to an in-home based policy, a business owners policy covers business equipment, business property, additional expenses, loss of income, and liability. The only difference between an in-home based policy and a business owners policy is that it offers coverage on a bigger scale.
If you use a car to run business errands such as transporting of products, visiting clients, or delivering supplies, you can take out an automobile insurance. An automobile insurance will cover you in the event a car accident occurs while you are running a business errand. Consult with your homeowners insurance company or your automobile insurance company. Take out automobile insurance in the following instances:
- You own or lease a car or your business as an entity owns or leases the car
- You or your employees drive the car
- The way you utilize the car, meaning you use it to transport people, deliver packages, or carry hazardous material
If you operate a home-based business and have hired more than one employees, it would be in your best interest to invest in the workers’ compensation insurance. By investing in this policy, you will protect yourself from claims made by employees who receive an injury while at your house or due to running an errand on your behalf such as getting into an accident while delivering products to a client.
However, it should be noted that the following people are usually exempt from workers compensation eligibility:
- Business owners
- Independent contractors
- Unpaid volunteers
- Farm workers
- Domestic employees employed in private homes
If you plan on buying workers compensation insurance, your payroll and industry will determine the rate you are charged while the insurance company will determine the premiums they charge you depending on the experience of your home-based business.
6. Business Interruption or Continuation Insurance
Business interruption or continuation insurance pays for expenses that result from a loss of income. This coverage might be a part of the homeowners policy endorsements, in-home business policy, and business owners policy.
Home-based businesses should take out property and liability insurance. This type of insurance will protect them from unexpected loss or damage their business equipment or business property sustains. Additionally, it will protect them from lawsuits lodged against them by clients who received an injury while at your home.
Do not depend on your homeowners insurance policy to cover these aspects of your home-based business. Instead, your homeowners insurance policy may put limitations on how much money they allow to you to cover unexpected expenses resulting from a disaster that cost you your business equipment and home office.
Moreover, a basic homeowners insurance policy may not cover liability claims, thus exposing your business to potential lawsuits in the event of an injury occurs on your property. You can either obtain property and liability insurance separately or you can opt for a more comprehensive coverage by opting for an in-home business policy.
Tips to Consider When Insuring Your Home-based Business
Here some tips to consider when insuring your home-based business:
- Do not presume your current homeowners insurance policy will provide coverage for your home-based business.
- Consult with your insurance company or insurance agent to determine if your home-based business is eligible for a homeowners policy endorsement (eligible to those who receive clients at home).
- Each insurance agent and insurance company’s in-home business policy differs from each other.
- Take steps to maintain a safe and secure working environment at home.
- Ensure stairs are free of items to prevent accidents
- Ensure electrical cords are wrapped and put away
- Ensure there are no spills on the floor and if there are spills, clean it up immediately to prevent someone from slipping and falling
- Ensure you have set fire alarms in the event of a fire at home
- Maintain and store receipts and documents for business equipment in an organized manner.
- Establish an inventory system to note down business property and its value, updating it each year or as soon as you invest in new business equipment (this will determine the degree of coverage you need to apply for)
- Document everything in case you have to file an insurance claim
- Take pictures of your property and business equipment in case you have to file an insurance claim
- Back all files, documents, and records stored on your computer (USB or cloud).
- Intellectual property such as client list, financial documents, and work-related documents
If you are thinking of establishing a home-based business in Connecticut, you should apply for insurance coverage to protect your business from unforeseen circumstances.
Last Step: Inform Your Insurance Company
Prior to starting a home-based business, you need to inform your insurance company of your plan.
Otherwise, your claim to insure your business may be denied or you may not be able to get your policy
Tell them the type of home-based business you are planning to start. Based on that, your insurance
company will match you to a type of insurance policy you should get to insure your home-based
They will combine different insurance policies into one policy to give you a comprehensive coverage
required to insure your home-based business. You should also know how the insurance company will
calculate your premiums.
They will calculate your premiums depending on the duration you operate your business from home,
the type of business you run, your credit history, and your location. You will receive lower premiums to
insure your home-based business if you take security measures such as installing a security system and
Out of all the policies mentioned, the two of the most important policies you need to obtain include
liability insurance and business property insurance. The other types of policies you need to apply for
depending on the type of business you operate from your home.
If you are thinking of establishing a home-based business in Connecticut, you should apply for insurance
coverage to protect your business from unforeseen circumstances.