While home-based businesses are popular, many do not have the insurance protection they need.
“When people are working out of their house, they think ‘Well, I have homeowners coverage,” says Terry McConnell, vice president, Personal Lines Underwriting. “But the homeowners policy hardly ever covers the business.”
What homeowners policies don’t cover
Many—though not all—homepreneurs need extra protection beyond their homeowners policies. That’s because most homeowners policies lack these important coverages:
- Business personal property
Most homeowners policies provide limited coverage of $500 to $1,000 for tools, machines or other equipment you use exclusively for your business. If your belongings are worth more, you definitely need extra coverage.
- Premises liability
Suppose you cut hair in your basement, and a customer trips and falls over a misplaced basketball. That customer might sue you. If he does, you’ll want premises liability since your homeowners policy won’t cover a liability claim filed by a business client. If the injured customer is a friend who was lingering around after a haircut for coffee, you might still be liable for their injuries. “If there’s no business policy in force, there is a gray area in this situation,” says McConnell. “But if you have both types of insurance, you’ll be assured of being covered.” When it comes to liability, it’s better to be safe than sorry since these claims tend to be the most expensive.
- Off-premises liability
If you think that an accident that doesn’t happen on your property isn’t your problem, think again. Home-based business owners are often liable for injuries their clients or their clients’ property sustains away from their home. For example, a real estate agent could be liable for injuries a potential buyer sustains during a home showing.
- Professional liability
Businesses that offer professional services or advice also should consider purchasing professional liability coverage. Professional liability provides coverage for negligence claims as well as defense costs of lawsuits, even if they’re groundless.
- Business income and extra expenses
Business income coverage ensures you receive your regular income when a covered loss damages your premises. Extra expenses kicks in if you need to temporarily rent space or equipment after a covered loss.
Three ways to get the coverage you need
If you need more coverage than your homeowners policy offers, you’ll need to consider the size of your business, the kind of work you do, how many clients visit your home and how often you work off-premises.
The three most common coverage options include:
- Homeowners policy endorsement
An endorsement is often the best option for smaller operations with minimal business property and client visitations. For starters, it increases the level of protection for your business personal property. You can also purchase business liability insurance if a small number of clients come to your home.
- In-home business policy
This option often works best for a mid-sized business with pricier equipment and a steadier stream of clients visiting a home. Most policies reimburse you for the loss of important papers and records, accounts receivable and off-site business property. Some even include business income and extra expenses and cover a small number of full-time employees.
- Business owners policy (BOP)
If you have more than a handful of employees, a lot of costly tools or equipment or a need for a high level of liability coverage, a BOP is probably your best bet. That’s because it offers the broadest amounts of coverage for business property and equipment, loss of income, extra expenses and liability.
A BOP policy should be purchased in addition to a homeowners policy since a homeowners policy is still needed to cover the building, personal property and personal liability that’s not covered by the BOP policy.
Depending on which policy you choose, you might also want to consider these extra coverages:
- Workers’ compensation if you have employees
- Disability insurance to protect your income if you’re ever injured and can’t work
- Business auto insurance if you use vehicles for business
Because business insurance is usually much more complex than personal insurance, it’s best to talk with someone like an ERIE Insurance Agent about it. He or she can assess where your coverage gaps lie and which endorsement or policy would best protect your business.