Of the estimated 29.6 million small businesses in the U.S., roughly half, or about 15 million, are home-based businesses. One survey of home-based business owners found that 6 out of every 10 don't have business insurance. Most figured they either didn't need it or were already covered by a homeowners policy.
If you work out of your house, you need to think about insurance for your home-based business. A homeowners policy probably doesn't offer much protection against loss of business equipment, not to mention liability if a client gets hurt or compensation if your business is disrupted by a fire, flood, or other disaster.
Home-Based Businesses Are Vulnerable
Losing your home to a natural or man-made disaster would be a tragedy. But at least you'd still have your livelihood. Or would you? If you depend on a home-based business for income, perhaps not.
Many people think homeowners insurance will cover a home-based business in a catastrophe. Policies vary, but in reality most typically top out at a few hundred dollars for business property lost to a fire, burglary, or natural disaster.
And while you'll get some liability protection for injured "incidental" workers like babysitters, you don't have protection covering accidents and medical costs for bona fide employees. Ditto for customers if, say, you're a hair dresser whose client trips and falls. Nor would an accountant operating from a home office be reimbursed for lost income if a hurricane levels the house.
Insuring Your Home-Based Business
The most economical way to insure your home-based business is to add a business endorsement to an existing homeowners policy. If your annual receipts total just a few thousand dollars, for as little as $20 extra per year in premiums, you might be able to purchase an endorsement that raises your policy limit for business equipment to $5,000.
A more expensive, but by no means cost-prohibitive, option is to take out a stand-alone in-home business policy. Spend a day researching choices. A standard policy, which might run between $250 and $500 a year depending on the size and nature of a home-based business, typically covers:
- Third-party liability, which means medical and legal expenses, ranging from $20,000 to $100,000 or more, for injured employees or customers.
- Your own injury, incurred working at home.
- Destruction or theft of business property, like a building contractor's tools or a jeweler's stock of precious metals. (Between $2,500 and $5,000 is standard, but policy limits can be customized.)
- About $10,000 if you're stiffed by customers.
- Funds to relocate after a disaster, plus payroll expenses (often for 60 days) and lost income (sometimes up to a year).
- Your legal fees if someone gets hurt, or if you're accused of slander or libel.
- Loss of computer data.
Save Money on a Business Policy
Between $250 and $500 is a ballpark range for a home-based business policy, according to the Insurance Information Institute. However, annual premiums will vary based on what type of business you have and how much coverage you need. Here's how to keep costs down:
- Ask your current home or auto insurer for a multi-policy discount.
- Look for group discounts from the likes of trade associations or AARP.
- Earn safety discounts by installing automatic sprinklers, or fire and burglar alarms.
- Choose higher deductibles that'll result in lower annual premiums.
- Opt only for coverage that addresses your home business's specific needs.