Running a business from your home is more common than ever, but homeowners often forget how this impacts their insurance. Many owners assume their homeowners policy automatically protects the business running out of their home. Unfortunately, that assumption could leave you with a denied claim… and a large bill afterwards. It is critical for you to know how (or if) your home insurance will cover your home business. In this guide, we explain how an homeowners policy treats home-based businesses and what to do about it.
Quick Answer
In short, a standard HO-3 policy typically offers little business property coverage and almost no business liability protection. Therefore, most home-based business owners need an endorsement, a separate liability policy, or a business owners policy.
Key Takeaways
- Standard HO-3 policies usually cap business property at a low amount (think typically around $2,500) on premises.
- Business liability is generally excluded, so customer injuries at your home may go unpaid.
- Signs, visitors, and employees each raise your risk and may require separate coverage.
- An endorsement, general liability policy, or BOP can close the gaps in your homeowners policy.
What Does an Homeowners Insurance Policy Cover for a Home Business?
The homeowners insurance policy (called an HO-3), also called the special form policy, is the most common homeowners policy in America. It was not designed to protect a commercial operation run from inside the home. For example, most policies cap business equipment and inventory at a low dollar amount. Often, that limit is about $2,500 on your premises and far less away from home. Consequently, a laptop, printer, camera gear, and stock could easily exceed what the policy pays.
Liability is the bigger problem, because standard homeowners policies exclude injuries and damage arising from business activities. Likewise, the medical payments coverage usually does not apply to business visitors who get hurt. Also, the policy typically excludes lost business income if a covered fire shuts down your operation. Finally, some insurance companies may even nonrenew a policy when they discover an unreported business. Other carriers may outright cancel coverage upon learning the insured has a business running out of their home.
What Risks Increase When Running a Business From Home?
Working from home raises your risk in several ways that a typical household never faces.
- Property: Business equipment, inventory, and supplies are worth more than most people realize.
- Liability: Customers, delivery drivers, and vendors may be injured while visiting your property.
- Professional: Advice, designs, or services can lead to claims when clients lose money.
- Income: A fire or water loss can stop your revenue while bills keep arriving.
- Data: Stolen customer information or a ransomware attack can create costly legal obligations.
- Vehicle: Driving for the business often falls outside a personal auto policy.
Does Business Signage on Your Home Property Impact Your Coverage?
Yes, a sign can change how an insurance company views your home. A visible sign tells everyone, including your insurer, that commercial activity happens at this address. As a result, it may invite more visitors, more foot traffic, and importantly, more chances for accidents. Meanwhile, local zoning rules or your HOA may restrict signs, so check those rules first. Our recommendation is simple: tell your agent about the sign before you hang it.
What If Clients or Customers Come Inside Your Home?
This is where most homeowners policies fall short, and the risk grows quickly. For instance, imagine a client trips on your porch step during a scheduled appointment. Because the visit relates to your business, the homeowners policy may deny the injury claim. Then you would pay medical bills, legal fees, and any judgment out of your own pocket. Therefore, regular client visits call for a business liability policy or a properly written endorsement if available with your home insurance carrier.
On the other hand, a business that never welcomes visitors carries a much smaller premises risk. Even so, product and professional liability claims can still happen without anyone entering your home. It is important to be 100% transparent with your insurance agent so they can best advise on how to cover your home business and your home.
What If Your Home Business Has Employees?
Hiring even one person creates new legal duties and new insurance needs. First, most states require workers’ compensation insurance once you have employees, and homeowners policies do not provide it. Second, an employee injured in your home office could sue you for large damages. Third, employee theft, employment practices claims, and stolen tools all need separate attention. Additionally, if employees drive for your business, you may need commercial auto coverage. Because rules vary by state, your independent agent can confirm what applies to your situation.
Your Options: Endorsement, Liability Policy, or BOP
Fortunately, you have three main ways to close the gaps in your homeowners coverage. Our team at Cincinnatus Insurance is well versed in these options and can point you in the right direction.
1. Home business endorsement. First, some carriers offer an endorsement that adds modest business coverage to your HO-3 policy. This option often fits very small, low-risk businesses with no employees and few visitors. However, endorsement limits are usually lower than those on a full commercial policy.
2. General and professional liability. Second, a general liability policy covers injuries and property damage your business causes to others. It can also pay for legal defense, which is often the largest cost in a claim. Meanwhile, professional liability, also called errors and omissions, covers mistakes in your advice or services. Consultants, designers, tutors, and bookkeepers often need this coverage because their work involves giving advice.
3. Business owners policy (BOP). Third, a business owners policy, or BOP, bundles property, liability, and business income coverage together. Typically, a BOP costs less than buying each of those coverages on their own. Additionally, many BOPs can be extended with cyber liability and equipment breakdown coverage. However, not every carrier writes a BOP for home-based businesses, so access to many carriers helps. As a rule, a BOP works best for businesses with equipment, customers, and steady revenue.
Coverage Possibilities by Type of Home Business
- Low-risk solo business with no visitors: Ask about a home business endorsement that raises equipment limits and adds basic liability protection.
- Customers visiting your home: Buy a general liability policy or a BOP before the first appointment.
- Business with employees: Add workers’ compensation and consider a BOP, employment practices, and commercial auto coverage.
- Advice or professional services: Add professional liability to cover claims that your work or advice caused someone financial harm.
- Selling products: Choose coverage that includes products liability and enough limits for your inventory.
- Storing customer data: Consider cyber liability coverage to help pay for breach notices, legal help, and data recovery.
- Using your vehicle: Talk to your agent about commercial auto or a business use endorsement.
Finally, an umbrella policy adds extra liability limits, but it usually will not cover business claims.
Simple Steps to Protect Your Home Business
- Read your homeowners policy and look for the business property limit and liability exclusions.
- Make a list of your equipment, inventory, and supplies with estimated replacement costs.
- Tell your agent about your current business model. Make sure to disclose any signage, visitors, employees, and how much revenue you earn.
- Check local zoning rules and any HOA restrictions before you grow the business.
Why Work With an Independent Insurance Agent?
An independent agency like Cincinnatus Insurance represents many insurance companies, not just one, so you can compare real options. As a result, we can match your home and your business with carriers that welcome both. Moreover, keeping your home and business policies coordinated helps prevent gaps and overlapping coverage.
Protect the Business You Built
Running a business from home can be rewarding, but it should not put your household at risk. With the right coverage in place, you can focus on customers instead of worrying about claims. Contact Cincinnatus Insurance today for a free review of your homeowners and business insurance needs.
This article is general information only and does not change or interpret your policy. Coverage varies by company, state, and policy form, so review your actual policy with your agent.