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How To Determine the Best Business Insurance Coverage for Your Home Business

If you run a small business from home, you need more than just homeowners insurance to protect yourself in case of an accident or injury. If someone sues you for an accident at your house, your homeowners' or renters' insurance may not fully cover what you must pay the injured person.

You need small business insurance and home-based business insurance to protect you from risks associated with doing business at home.

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Inadequate Homeowners' and Renters' Insurance Policies

Although some policies cover a home business, many policies have exclusions. This is when underwriting specifically excludes coverage of home businesses. This means an insurance company will not pay you for losses to your home business.

Here are some common examples of exclusions for policyholders with home businesses:

  • Business property is not covered in the event of a home robbery. If someone steals your business laptop, homeowners' insurance may not pay for it.
  • Full policy limits are not issued in a home fire because the policyholder didn't disclose that they ran a business from the house.
  • If a deliveryman leaves your home and slips and falls under the weight of the packages from your business, your liability coverage may not pay for his injuries. This is because your homeowners' insurance does not cover business deliveries.

If you already carry a homeowners' or renters' insurance policy, you likely carry liability insurance. This may cover those who come onto your property for a non-business purpose. It's generally pretty easy to add riders or endorsements to your pre-existing homeowners' or renters' insurance policies to cover the most common business risks. Schedule a meeting with your insurance agent to find out.

Cost of Replacement

Sit down and assess how much it would cost to get your business back up and running if your business property was lost in a fire or by theft. If you use specialized business software (which can cost hundreds, if not thousands, of dollars), include that when replacing your computer. In addition, if you use expensive equipment in your business, be sure to figure out how much it would cost to replace it.

When you've figured out how much it would cost to replace everything, return to your insurance company. Ask how much it would be to add that amount of coverage to your existing policy. Remember that the higher the deductible you can afford, the lower your insurance premiums.

Types of Injuries That May Be a Covered Loss

When small business owners do business at their house or have a home-based business office, there are a few types of injuries that an insurance policy may be able to cover:

The type of business insurance and your liability policy determines the amount of property coverage, if any, and how much it will cover.

Business Liability Insurance

When you talk to your insurance agent about home business insurance, you should also talk to them about home business liability insurance. There are numerous types of business liability policies to fit your home-based business needs.

Types of Business Insurance

Sometimes, an insurance company won't allow you to add an endorsement to your existing homeowner or renter's insurance policy. In those instances, you should secure commercial insurance for your home-based business.

Property Insurance

You can purchase commercial property insurance for your home-based business. If you're a therapist who sees clients in your home or a separate building on your property, you should consider purchasing premises liability insurance.

Business Owners Policy (BOP)

The most common business policy is a bundled policy called a BOP. It generally has three types of insurance policies in one package:

  • General liability insurance for property damage, bodily injury, and defamation claims
  • Business property insurance to replace stolen or damaged business equipment or property
  • Business interruption insurance for compensation if a fire or natural disaster prevents you from operating the business

Your insurance agent can provide you with an insurance quote for this bundle. The Hartford is a common BOP carrier.

Cyber Liability Insurance

With the widespread use of computers and file-sharing services like Dropbox, cyber liability insurance is more important than ever. This insurance provides coverage in case a hacker breaches your client files online, infects your computer with malware, or steals client data.

Products Liability Insurance

If you make or sell products in your home business, you should invest in product liability insurance. This will cover your business if someone is injured using your product. Candles are a standard product covered under this type of insurance.

Errors and Omissions Insurance

Certain types of businesses require the business owner to carry special types of liability insurance. If you're rendering professional services or giving advice, you should consider professional liability insurance. This is sometimes called malpractice or errors and omissions insurance. Therapists, consultants, lawyers, and accountants purchase this insurance.

Commercial Auto Insurance

Just like homeowners' and renters' insurance, your pre-existing automobile insurance policy (auto policy) may not cover you for accidents you have in your personal car while you're on errands. So, if you have a truck you use solely for your business, or if you use your personal car for business errands or other business purposes, you should review your auto policy. Tell your insurance company to ensure you get the coverage you need.

Keep in mind that your insurance company may not offer business automobile insurance. If so, you must find a new insurance company to cover property damage and bodily injury during business use. You can get an insurance quote from your local agent.

If you allow an employee or contractor to use your personal car for business errands, consider adding them as an additional insured to your car policy.

Suppose you have employees who use their own cars for your business needs. In that case, you need an employer's non-owned automobile liability insurance. If an employee gets into an accident while driving around for your business, you may be liable for the accident. You would be responsible for the workers' personal injury under workers' compensation insurance.

Worker's Compensation Insurance

Suppose you have employees who work for you, even for a home-based business. In that case, you must look into worker's compensation coverage (workers' comp). This insurance policy covers any injury occurring at work.

Bundled Insurance Policies for Both Your Home and Your Business

Because home businesses are becoming more popular and normal, many insurance companies now offer packages offering both home and business insurance in one go. These policies are generally designed to cover your business equipment (including computers), whether the equipment is used in your home or elsewhere. The bundled policies include the kinds of liability insurance home businesses need.

The main benefit of these bundled insurance policies is that they're generally less expensive than adding riders to your pre-existing homeowners' or renters' insurance. You should always check the types of coverage offered in these bundles carefully. Sometimes, these policies are designed for home offices and may only partially cover you if you manufacture or store your products in your home.

Speak to a Business Law Attorney

When considering whether to get home business insurance, talk to an experienced business law attorney. A skilled attorney can explain the pros and cons of carrying these insurance policies and help you navigate what you need.

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