Many people with an entrepreneurial spirit may opt to run a business from their home instead of working in a typical office or store. The recent trend in transitioning to home-based businesses appears to have happened in tandem with the changes that have taken place due to the pandemic. As entrepreneurs continue to run their businesses from home, it’s important to consider protecting the business and its employees. In recent years, 44% of home-based business owners either don’t have commercial insurance or don’t know what their insurance covers.
Should such a business consider home-based business insurance? Read on to learn more.
Does a Homeowners Insurance Policy Cover a Home-Based Business?
A homeowners policy may help protect your home, but it may not provide adequate coverage to help protect a home-based business. While the terms and conditions of each policy will vary, the typical homeowners insurance may not be comprehensive enough to meet all of a home business owner's particular needs.
Consider the following small business insurance policy types which may be helpful to have in place for a home-based business:
Business Owner’s Policy (BOP)
A BOP will help cover losses to business property and equipment, loss of income, and third party injuries due to a covered event. It is a policy that combines property and liability coverage. For businesses that are operated out of a home, a BOP will help cover the portion of the home exclusively used for business purposes.
Commercial Property Insurance
Commercial property insurance alone, or as part of a BOP, can help cover losses to business property in a home-based business. Consider what type of equipment is used to run the business; desktop computers, laptops, printers, and fax machines can be expensive and it may be beneficial to maintain insurance to help provide protection for these items in the event of a loss. A homeowners policy may not provide adequate protection for these business-related items if a covered event were to cause damage to them.
Commercial General Liability Insurance (CGL)
Commercial general liability insurance for businesses typically helps protect a company against claims made by customers and other third parties alleging property damage, bodily injury, and/or advertising injury caused by the business or its employees. These claims can arise due to the damages caused by the business’s operations, and services or products provided by the business, among other things. Without adequate commercial general liability insurance coverage, a business could end up having to compensate third parties out of pocket.
Errors and Omissions Insurance (E&O)
E&O insurance, also referred to as professional liability insurance, can help provide financial protection for companies and professionals if a client alleges their work is inadequate or they committed a negligent act. Depending upon the nature of the home-based business, E&O insurance can be a way for such businesses to help protect themselves and their employees against the financial burden of negligence claims made about the professional services or advice provided by the business and its employees.
Product Liability Insurance
Product liability insurance can help businesses protect against losses from claims alleging that a product has caused bodily injury, property damage, financial loss, death, or other damages. If a home-based business makes, sells or distributes goods to the general public, it may want to consider obtaining this type of policy.
Cyber liability insurance policies can help cover losses caused by cyberattacks and data breaches. Small businesses are frequently targeted by cybercriminals more than large companies, so home-based business should consider obtaining cyber insurance policies to help protect against losses arising from such incidents.
Hired and Non-Owned Automobile Insurance (HNOA)
HNOA policies are liability policies that can help cover bodily injury or property damage to a third party due to an accident caused by your business in a vehicle that your business does not own, lease or hire. A personal car insurance policy typically will not cover injuries or property damage caused by one’s personal vehicle when it is being used for business purposes. Therefore, if a personal car is being used for business purposes (as opposed to using a business-owned automobile – whereby a commercial auto policy may be sought), then an HNOA policy may be beneficial. This policy may be particularly important if a business delivers products or if the business owner or employees meet clients outside of the home.
Workers’ Compensation Insurance
Workers’ compensation insurance provides coverage for employees who are sick or injured as a result of their employment. This coverage is generally governed by state laws so it is important to understand the workers’ compensation laws in the state where the business resides.
Some Common Home-Based Business Types that May Want to Consider Business Insurance
- Creative Studios
- Interior Design