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Does a Homeowner’s Policy Cover Your Home Business?

Thanks to advances in technology and the Internet, more and more people are running home-based businesses. Will a homeowner’s policy cover the risks of a home-based business? In nearly every case, the answer is no. The only exception might be if a homeowner’s policy has a special endorsement.  For instance, you run a catering company from your home. While there is an increase in home-based businesses, fewer insurance companies offer such endorsements. Additionally, some policies may give a very limited amount of coverage for business property, such as a computer. 60% of home-based businesses lack adequate business insurance, according to the Independent Insurance Agents & Brokers of America.

One reason owners forgo insurance is confusion over what may be already covered by a homeowner’s or a renter’s policy. But most home-business owners have little or no coverage from their homeowner’s policy. What’s more, if you file a homeowner’s (or renter’s) claim for losses sustained by a previously undisclosed home-based business, your insurer may refuse to cover it – or cancel your policy.

You may think you don’t need coverage because you’re only selling online and nobody comes to your home for business purposes. In reality you. What if someone takes action based on information on your website, or someone is injured using a product or service you provide? What if the FedEx man shows up to deliver a business package and slips on your doorstep? If it’s for your home-based business, your homeowner’s policy likely won’t cover your liability. If you’re running a business from home, you probably need special insurance.

How can you protect a home-based business? There are basically three types of insurance to choose.  Your business’s complexity and type will determine which is best for you. 

Add a Rider to a homeowner’s or renter’s insurance policy

The most inexpensive home-based business insurance is an add-on or rider that expands a homeowner’s or renter’s policy to cover the business. The cost of a rider is minimal – perhaps $100 a year – but it generally provides about $2,500 of additional coverage.

This type of insurance is appropriate for a one-person business without a lot of valuable equipment or business-related visitors.  The business is unlikely to suffer a major loss if unable to operate for a while as a result of fire or another disaster.

Such coverage may work, for example, for a graphic designer who works at home and does all of his business online, including delivering files. But it could leave a home-based business owner on the hook for costs such as a large medical bill for that injured FedEx guy.

In-home business policy

An in-home policy covers a broader spectrum of contingencies, including loss of critical documents or theft of funds being taken to the bank for deposit. An in-home policy, issued by a home insurer or a specialty firm, usually is a plan against injury or theft covering as many as three employees. Rates typically run from $250 to $500 and the plans can cover as much as $10,000 in losses.

Business owner’s policy 

Entrepreneurs who need more than $10,000 of coverage should obtain a business owner’s policy. This comprehensive policy is what brick-and-mortar retailers, as well as other businesses, generally opt for. These policies cover damage to or loss of business equipment and other assets, liability for customer injuries, loss of critical records, malpractice or professional liability claims, and loss of income or a business interruption in the case of a power outage or natural disaster. The policy protects against a larger loss than a homeowner’s policy rider or an in-home business policy.

If you’re running a home-based business or thinking about starting one, call us today to discuss your options.