Do you need business owners insurance for home-based businesses?

Some answers to questions you may have.

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Published: July 26, 2010
Updated: October 07, 2014

Q: Do home-based businesses need coverage beyond the homeowner’s policy?

A: Yes. Homeowner policies are designed to cover only the exposures of owning and living in a home. You might be able to increase the coverage to include certain business assets such as your company's computers, but that may not completely meet your business's needs. Homeowners’ policies also have limits on how much coverage you can endorse for business purposes.

"Homeowners' policies have limits on how much coverage you can endorse for business purposes."

Q: What other types of policies should home-based businesses consider?

A: To mention just the basics:

  • Business owners policy (BOP) covers damage to business property — office furniture, a home-based retail store display, or a hair stylist's chair in a home beauty parlor — and general liability which includes bodily injury such as slips and falls, third-party property damage, and personal injury. It covers product liability for tangible products you sell at home or completed operations coverage of tangible products you work on. For example, the latter covers damage to your customer's home if faulty wiring in a TV set you repaired starts a fire.

  • Workers' compensation insurance covers employees in your home business.

  • Commercial auto insurance covers automobiles, vans, or trucks used for business purposes.

  • Umbrella liability provides additional protection for your business against catastrophic losses that exceed the limits of the business auto policy, commercial general liability policy, and employer's liability coverage. For example, if your BOP has $1 million in coverage, but you feel your firm might be exposed to $5 million in liabilities, you would buy a $4 million umbrella policy.

Q: How does a home-based business owner shop for these policies?

A: You can obtain quotes online for many types of insurance policies and you should talk to your current insurance agent if you have one. Seek recommendations from other business owners if you don't have an agent. Shop around with respectable carriers — you want to be sure the company will be there when you need to make a claim and the process will not be difficult. For larger businesses, you may need to work with an industry expert and a business attorney who understands your industry. An insurance agent or broker can help you shop for specific coverage; an attorney can advise you on the proper structure for your business (sole proprietor, limited liability company, etc.), and work with the insurance broker so the coverage works for your type of business. Even if you rent, you should also seriously consider renters insurance as a small business owner.