Are you a small business owner? After all, almost all huge businesses have had humble beginnings. But a small business is like a shoot. It needs care and is sensitive. That is, God forbid, but say, if anybody files a lawsuit against your company, will your business be able to take that? Now comes the main question, does homeowners’ insurance covers a home business? Well, no! Your homeowners’ or renter’s insurance either does not cover your business activities, or the coverage is very insufficient.
Thus it would be best if you had a separate policy for your small business. But why exactly? Let’s see.
Why Do You Need Home-Based Business Insurance?
The reason is simple. Your homeowners’ or renter’s insurance does not cover your business-related risks. And those that provide coverage typically have a limit of $2,500 for your business equipment while you are at home and $250 when you are elsewhere. But these limits are insignificant when compared to the losses you might incur.
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Let us see a few situations where your existing policy might not cover you:
- You are a home bakery, and a client comes to pick up the parcel and trips on your stairs while on his way down. He sues you for his injuries and other consequential losses.
- Let’s retake the above example. You are a home bakery, but you also deliver. So, you are using your car to deliver your elegant-looking wedding cake to the venue, but you meet with an accident on the way. Again, your existing policy would not cover you.
- A fire incident occurs at your home, and a lot of your equipment is nothing but ashes now. Again, you would need home-based business insurance to cover your losses entirely.
There are several other situations where you would need a separate policy. But it is also a fact that all businesses have different requirements. Thus, depending on the type and size of your company, there are different types of policies as well. Next, let us see what they are.
Types Of Home-Based Business Insurance Policies?
There are majorly three types of home-based business insurance policies. And which one will suit you depends on the nature of your company, the revenue and profits, and the amount of coverage you might need. Here they are:
#1: An Endorsement To Your Existing Homeowners’ Policy
This option is extending your existing homeowners’ policy to accommodate your needs. This endorsement adds more property coverage and little liability coverage to your current policy.
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This option is the most basic one, mainly for businesses with annual receipts amounting to $5,000. It needs you to pay a premium of merely $20. And for this meager premium, you can double your existing business equipment limit from $2,500 to $5,000.
#2: In-home Business Insurance Policy
If you have outgrown the endorsement policy option, then the next option might be the in-home business insurance policy.
This option provides features tending to reach the larger commercial policies, but only with lower limits and lower premiums.
The annual premiums in this policy tend to stay less than $300. And with such economic premiums, you get a business property cover of $10,000 and a liability cover between $300,000 and $1,000,000. You can choose limits according to your needs.
Not only this, if due to any reason, you have to shut your company temporarily as your home is under repair, the policy will pay you for the losses, your income, and the payroll expenditures for a year. Furthermore, it will also cover (limited) you for the loss of valuable documents, offsite business property, accounts receivable, and use of equipment.
According to us, the premium price is a fair deal for getting the stress off your shoulders. With insurance, you can focus on your company growth with the peace of mind that you are protected no matter what.
#3: Businessowners Policy (BOP)
Businessowner’s policy is the ultimate cover for home-based businesses. It gives you a wide variety of coverages. But make sure that you require the wide variety of coverages you get with BOP. You can always consult your insurance agent for the same.
Additional Coverages For Your Home-Based Business
Above were the basic policies that a home-based business can have. But there are a few additional coverages you should consider based on the nature of your business.
#1: Business Vehicle Coverage
If your business requires you to use your vehicle, you might need to buy a business vehicle coverage.
There is no clear differentiating line, but you might want to get this coverage if the vehicle is primarily used for your company’s work. However, it would be best to consult your insurance agent for a clear yes or no about whether you need this coverage.
#2: Worker’s Compensation Insurance
Worker’s compensation coverage is required by law in all states. But if you need it or not depends on the number of employees you employ. Some states require you to buy this coverage even if you have more than one employee. Do check your state’s laws about this coverage or ask your insurance agent.
#3: Errors & Omissions (Professional) Liability
E&O Liability coverage is required by service provider small businesses like Engineers, Accountants, Lawyers, etc. This coverage is essentially used when you provide an erroneous service to the client that causes him financial losses. E&O policies are mostly written on claims-made forms. This coverage might cost you anywhere between $500 to $1,000 annually.
So, finally, does homeowners’ insurance cover home business? And the answer is, partly. The homeowners’ policy has low limits of coverage which might be insufficient in time of need. Also, the existing policy only offers cover for business equipment, and other aspects like liability, business continuity, etc., are not present. Thus, if you want to keep your business safe, we recommend going for a suitable home business policy.
So, we hope we answered your questions about does homeowners’ insurance cover home business. And if there are any doubts, questions, or suggestions, please drop them in the comments section. We are all ears and reply ASAP!