Does Homeowners Insurance Cover Home-Based Businesses? What You Should Know

Posted on: 14 March 2017

Many Americans are achieving the work/life balance that they want by starting their own home-based businesses. In fact, 52% of American small businesses are home-based. If you're looking for a way to become one of the many Americans working at your own business from home, you probably have many questions about running a home-based business.

One question that you definitely should be asking is whether or not your business will be properly insured while you work at home.  Do you need insurance? Are you covered by your homeowner's insurance? If you're not covered, what should you do? Take a look at some things you should know about homeowners insurance and home businesses.

Does Your Home Business Need Insurance?

The level of insurance your business needs depends a lot on what kind of business you're in. To decide whether or not you need insurance, consider what could happen without insurance. Does your business require any equipment? If the equipment was damaged while you were using it to work, could you easily replace it out of your own pocket? Could your equipment damage your home, and if so, could you make the needed repairs out of your own pocket if they weren't covered by homeowner's insurance?

Does your business involve people coming to your house? If someone were injured in your home, you might be liable for their medical bills, and without insurance, you'd have to pay out of pocket. Does your business involve giving advice, like a lawyer or a tax accountant does? If you make a mistake, you may be liable for any losses suffered by a client due to bad advice. Professional liability insurance, like malpractice insurance, would usually cover that. If you're not insured, though, you can be held personally liable.

The truth is, most home businesses will use at least some equipment or involve some interaction with people, and could probably benefit from at least some insurance coverage.

Are You Covered by Homeowner's Insurance?

If you have a typical homeowner's insurance policy, your home-based business is probably not automatically covered. Depending on the policy, you may have limited coverage of business equipment, but some insurance policies don't even have that. Your homeowner's insurance company may even consider it a violation of your policy if you operate a home business without informing them.

That means that if something happens in the course of doing business that causes damage, not only would your business equipment not be covered, any damage to your home might not be covered either. It's a good idea to talk to your homeowners insurance agent before you set up shop in your home.

What You Can Do

A typical homeowner's insurance policy might not cover your home-based business, but it may be possible to add coverage to your homeowner's insurance policy with a home business endorsement, or rider. This addition to your policy increases your coverage for property damage, and can even cover business property located outside the home. It also covers bodily injury, property damage, and personal injury.

Adding a home business endorsement to your existing homeowner's insurance policy is one of the most affordable ways to get coverage for your business. You're already paying for the policy, and unless your home business is unusually risky, the additional cost for the rider will probably not be exorbitant.

However, a home business rider probably will not cover professional liability, which means that you may need separate insurance to cover that if it applies to your business. Your home business may also eventually outgrow the limits of a homeowners insurance rider. At that point, you would need to look into separate business insurance. However, for many home businesses, a homeowners insurance rider is good protection for the fledgling entrepreneur.

If you're considering a home-based business, contact your homeowner's insurance agent. They can work with you to ensure that both your home and your new business are adequately covered.