Many home-based entrepreneurs assume that their home owner’s or rental policies will cover risks associated with their home business. But most do not provide protection for business activities.
“Your home owner’s policy is going to provide protection for your house or your apartment and your personal possessions,” says Jeanne Salvatore, vice president of consumer affairs for the Insurance Information Institute in New York.
“But what you’re not going to be covered for is business liability, professional liability, loss of income or any of the other coverages that are important to maintaining a home business,” she adds. “And you’ll have only limited coverage for your business equipment.”
So what should you do to protect your home business from peril? According to Salvatore, you have three options:
- Option #1: Add an endorsement(s) to your home owner’s policy. Also referred to as a “policy rider,” an endorsement is an extra provision added to your existing policy. A typical home owner’s policy provides $2,500 worth of coverage for business equipment. But for as little as $25 a year, you can increase the limit to $5,000. However, the amount varies among insurance carriers. You can also get a policy rider for business liability, which protects you against claims in the event you are sued by someone who is injured while on your premises. Endorsements are available in most states and are typically offered to home businesses that generate under $250,000 in annual revenues, although revenue caps vary from company to company.
- Option #2: Purchase a home work policy. A home work policy is one that combines your home owner’s policy with a business owner’s policy (BOP). Under this policy, you can purchase from $300,000 to $1 million worth of liability coverage. “It has all the things that are in a standard home owner’s policy. But you also have a package of coverage that would include business liability, business expense and other things like business interruption insurance,” explains Salvatore. If you are unable to operate because your home has been damaged by fire, for example, your home work policy will generally cover lost income and ongoing expenses, such as payroll, for up to one year.
- Option #3: Choose a BOP or business owner’s policy. It covers business equipment, loss of income, ongoing expenses and liability. However, it provides higher limits of coverage and is more comprehensive than a home work policy. John Campbell, chairman and CEO of Campbell Solberg Associates Inc., a full-service insurance company in New York, says home-based entrepreneurs are eligible for BOPs based on the size of the premises, limits of liability required, type of commercial operation and the amount of off-premises activity.
Most home business owners will purchase business equipment and general liability insurance. But depending on your business, you may need additional types of coverage.
For example, if you operate a home business that sells or produces food, you should secure product liability insurance to cover the costs of injuries to persons using your product. If you operate a medical or other professional office, you should obtain malpractice