With the advantage of added flexibility and a commute that can’t be beat, it comes as no surprise that home-based businesses are booming. In fact, about 50 percent of all businesses currently operate out of a residence — a statistic that has remained constant for nearly a decade. However, as convenient as can be to run your business from your home, many entrepreneurs face an unfortunate surprise when accidents, interruptions, or natural disasters affect their homes — and, as a result, their workspace.
Did you know that a standard homeowner’s policy only covers up to $2,500 in business property? While this may be enough to cover your computer and other small equipment, it is unlikely to provide adequate coverage for many other common claims.
Claims that Your Homeowner’s Policy Won’t Cover
For instance, consider what would happen to your home-based business in one of the following scenarios:
- A fire or natural disaster damages your home, leaving you without the space and equipment to run your business and generate income.
- While visiting your home for a business-related meeting, a client or employee is injured and requires medical attention. An accident or theft leads to the loss or damage of your samples, inventory, or prototypes. The expense of replacing these items could put your business in financial trouble.
- Your computer is stolen and you lose business records or sensitive client data.
- While carrying a business-related package on your property, your delivery person falls and suffers an injury. This could lead to you being liable for medical or legal expenses.
Keep in mind that while you can count on your homeowner’s policy to cover the damage to your residence and some of your business property, it is unlikely to cover litigation or court judgment costs for your business in the event that a third party files suit against you.
Here’s the good news: you have options, and they’re not hard to take advantage of. By taking steps to fill in the gaps in your coverage, you can ensure that the above scenarios — or other unforeseen events — don’t sideline your business.
A standard homeowner’s policy only covers up to $2,500 in business property.
Filling in the Gaps of Your Home-based Business Insurance
When it comes to making sure your home-based business is completely covered, you have two primary options.
Option 1: Homeowner’s policy endorsement
If you’re looking for the easiest and least expensive way to expand your insurance coverage to meet your home-based business needs, look no further. By adding an endorsement to your existing homeowner’s policy, you can expand your business property coverage and add liability protection. Called “permitted incidental occupancies,” this can be a great option for home-based businesses that don’t require a lot of equipment or travel. It can even extend coverage to other structures at your home that you use for your business, such as a detached garage or shed.
Business owners will be happy to hear that homeowner’s policy endorsements are super affordable. While annual premium cost varies depending on your existing policies liability limits, you can expect a general range between $20 and $75 per year. Keep in mind that if you conduct business from another structure on your property, this may cost extra.
However, the homeowner’s policy endorsement won’t protect you from liability for business activities that take place off-site. For instance, if you regularly meet with clients or perform work activities at another location, this coverage might not be enough for your purposes. Because of these limitations, this option is best suited for freelancers, consultants, or private lessons — any business where employment activities take place in the home, but the home is still primarily a private residence.
Option 2: Business owner’s policy
If your business requires more protection than a homeowner’s policy endorsement can provide, you may want to consider a business owner’s policy (BOP). This policy combines property and general liability coverage into a single solution, and you can tailor your BOP to your specific industry to ensure you have sufficient protection. Most BOPs will cover you against:
- Claims related to third-party injuries
- Loss of income due to business interruption
- Loss of records
- Data breaches
- All property theft or damages — whether you own, lease, or rent.
Of course, with more extensive coverage comes higher cost. In general, a basic BOP starts at $500 per year, but costs may vary depending on your chosen property coverage limits, your business property value, where you’re located, and your home’s building materials. With a standard BOP, general liability coverage maxes out at $1 million, but it can also go as high as $2 million.
By adding an endorsement to your existing homeowner’s policy, you can expand your business property coverage and add liability protection.
Choosing Your Level of Coverage
If you’re unsure which option best fits the needs of you and your business, start by asking yourself a few simple questions:
- What’s the worst that can happen? Consider your operations, expenses, and environment. By determining your exposure and what kinds of costs you could be liable for, you’ll have a better idea of the coverage you need.
- How much is my business worth? If your business is more of a side hobby and not your livelihood, you may not need to worry about loss of income due to interruption. However, if the income your business generates is crucial to your family’s wellbeing, you may want to make sure your investment, hard work, and future is protected.
- Are there other parts of my business I need to cover? If you have employees, the answer to this question is yes. Your state most likely requires you to have workers compensation. If driving is a job responsibility for you or your employees, commercial auto coverage can also help protect your business behind the wheel.
Think your business needs additional insurance coverage? Contact your independent insurance agent to learn more about your options and make a plan for when your business grows. Visit Liberty Mutual Insurance’s small business page for more information.
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