The way people work has been changing slowly but steadily over the last few years. But, due to the COVID-19 pandemic, those changes ramped up at an exponential pace.
More and more people decided during the pandemic that they wanted to start their own business, or at least work from home as a full-time freelancer or gig worker. Today, 50% of all small businesses in the U.S. are home-based, according to the Small Business Administration.
There are roughly 15 million of these home-based businesses and about 60% of them are considered to be non-employer businesses. In other words, a majority of home-based businesses are single-person operations with no employees and business receipts of at least $1,000 for the year.
What’s more, 69% of all startup companies start as home-based businesses. Companies such as Disney and Apple, for instance, started out of the homes of the founders before expanding into the empires they are today.
These home-based businesses are unique in a lot of ways, and their needs are unique, too.
Many of these entrepreneurs rely on homeowners insurance policies to protect the home-based business they own, should something go wrong. But, is that the best idea?
Below, we take a look at some home-based business insurance options.
What Homeowners Insurance Doesn’t Cover
Many home-based business owners will rely solely on their homeowners insurance policy for protection in case something goes wrong. There are a few reasons why they do this.
For one, it’s less expensive, since homeowners will already have this insurance policy — and costs are a major consideration for any small business owner. Second, many people believe purchasing additional insurance is redundant and unnecessary.
There are issues with this line of thinking, though.
It’s important to understand that homeowners insurance won’t automatically provide coverage for certain home-based business essentials. This includes technology and professional equipment, if it’s used strictly for business purposes, as well as your critical business files.
Even if your homeowners insurance policy does cover your business equipment, it may not provide sufficient coverage for you. For instance, typical policies may only provide $2,500 of coverage for any property that belongs to the business.
This is why purchasing separate home-based business insurance is often advisable.
Here are some options to cover your home-based business.
Homeowners Insurance Endorsement
If you run a relatively simple home-based business, you could add a standard endorsement to your homeowners insurance policy. If your home-based business doesn’t generate a lot of sales, if it’s a part-time operation for you, and/or if you don’t have a lot of physical business assets, then this might be a good option.
Many homeowners insurance policies will offer a relatively inexpensive option to double the coverage limit for business property. This would mean that you’d be able to increase the business property coverage to around $5,000.
General Liability Insurance
If your home-based business is a little more complex, then you might want to consider purchasing separate general liability insurance. This policy would be good for entrepreneurs who have clients or customers come to their home, if they keep supplies and inventory at their home or another location and if employees work from their home.
In this case, a simple homeowners insurance endorsement would likely not suffice.
General liability insurance will provide coverage for a number of different things. This ranges from damages if a customer or employee gets hurt at your home, if your property sustains major damage, if your business is sued or if you have problems related to the loss or compromise of data.
This insurance will cover you in the case of personal injury, negligence, faulty products and more. It’s the standard insurance policy that all businesses should consider, whether they’re home-based or not.
Business Owner’s Insurance
If you operate your home-based business out of a specific structure on your property, then business owner’s insurance might be a good idea. For instance, if your home-based business operates out of your home’s detached garage, shed or other structure not attached to the home, then this policy would be worth looking into.
All homeowners insurance policies come with “other structures” coverage for any structure not attached to the main dwelling. However, there is a cap on how much coverage it provides, and that might not be sufficient for your home-based business.
What’s more, you may not be eligible for this coverage if your home-based business caused the damage to the property. For instance, if a fire started in your garage due to something at your home-based business, the insurance company may not provide coverage under a standard homeowners insurance plan.
Business owner’s insurance would provide sufficient coverage for you in this situation, as well as in other situations where you suffer loss or damage due to events such as high winds or fire. A typical policy will be a combination of liability and property coverage that’s specific to your business.
Business Owner’s Insurance Endorsement
A nice thing about getting a business owner’s insurance policy is that, once you have it, you can add business-specific endorsements to it. One of the most common endorsements on this type of policy is coverage for data loss.
So much of today’s business world revolves around data. If that data was lost or damaged — even slightly or for a short period of time — it could completely sink a home-based business. This endorsement could provide extra protection in this case.
There are also other endorsements you could add, such as coverage for off-site utilities in case your business income suffers due to a long interruption in services from a utility company such as electric, gas or internet.
Work with an Insurance Company That Knows Home-Based Businesses
Home-based businesses have very unique needs, and that includes insurance needs, too. If you own a home-based business, it’s important that you figure out what insurance is right for you so that your operation can be protected.
By working with an experienced insurance company such as Signature Insurance that knows home-based businesses inside and out, you will get the guidance and coverage you need, at a price you can afford.
Contact us today to learn more about home-based business insurance, and to get a free quote.