How to insure your home business

Posted in Home, Business

Congratulations! You’ve decided to take the leap and pursue your passion. Starting a home-based business is an exciting time. Whether you plan to work for yourself for a few hours a day or as an all-consuming endeavor, make sure you have the right insurance coverage in place to help protect you—and your business—if the unexpected happens.

According to Trusted Choice, Americans currently run approximately 38 million home-based businesses and about 70% of those are still in operation three years after starting. Generating more than $425 billion each year, these businesses are a vital part of the economy and need to be protected. If you’re operating a business out of your home, the type of business you own, the volume of sales you have and other factors affect what type of home business insurance is right for you.

Check out our tips for choosing the right type of coverage.

Step 1: Know your options.
Most insurance carriers offer different options for insuring your home-based business, and your needs will likely vary based on the type of business. For example, if you’re selling made-to-order t-shirts and keep a basement full of materials, the amount of coverage you need will be different from say, a writer, whose only tangible tools might consist of computers and software.

It could be that you need an endorsement on your current homeowners policy. Or maybe several individual business insurance policies are a better fit. What about a businessowners package policy? Let’s look at the differences and how they apply to home-based businesses.

Homeowners insurance
Homeowners insurance isn’t designed to cover businesses, but it may be effective for you if you only need coverage for a small amount of business property coverage. Incidental business property is most likely included in your base policy, but a base homeowners’ policy doesn’t provide business liability.

This is where a business endorsement comes in.

Home-based business endorsement
This endorsement is typically offered in two forms: one that covers equipment (think computers, tools and inventory) and one for liability. However, this endorsement typically does not include any professional liability coverage, which will cover you in the event of a lawsuit.

For property, the basic endorsement is typically limited to $3,000 in coverage for business-related property inside your home and just $250 away from home.

A liability endorsement is typically only available to in-home businesses that have few business-related visitors. This endorsement on your homeowners’ policy is limited to someone getting hurt on your property. Think about the person who delivers your inventory to you. If they slip and fall while delivering a business-related package, your liability endorsement would come into play.

There’s also a comprehensive coverage option. This type of endorsement can include things such as business property as well as the loss of records, off-site business property and loss of income if your in-home business is damaged to the point that it is unusable for a while. If you’re forced to pause in-home business operations temporarily due to a covered event in your home, lost income coverage will allow you to continue receiving the income necessary to pay employees and bills for up to one year.

If you need even more coverage, you may want to consider a BOP.

Businessowners policy
A businessowners policy (commonly called a “BOP”) is designed for larger home-based businesses. If you have over $10,000 in business property to protect, need several types of liability coverage (such as premises liability, operations and completed operations liability, products liability and medical expense coverage), you may want to consider a BOP.

There are additional benefits to having a BOP policy over a home-based business endorsement, too, such as liability coverage specific to your business type. Liability coverage on a BOP typically covers damages to others arising out of your work or product, but not the work or product itself. For example, if your home-based business is plumbing and you install a pipe, a BOP would typically cover water damage if the pipe breaks, but it would not typically cover the actual broken pipe.

It’s important to note that a BOP doesn’t include additional coverage types, such as workers’ compensation, health, life or disability insurance. So, cover your bases and make sure you ask your agent about these coverages, too.

Commercial auto use coverage
Like homeowners insurance, personal auto insurance isn’t designed to cover business use. With commercial auto insurance, however, you can protect both company-owned and personal vehicles that are used for business purposes. Commercial auto typically covers a possible gap in coverage between a business liability policy and a personal auto policy. Whether your business use of a vehicle consists of a weekly trip to drop off mail or daily use to travel to homes for demonstrations, you’ll want to be covered in the event of an accident.

Step 2: Review your coverage often and grow away.
Whichever coverage type is right for you, it’s a good idea to review your policy with your agent when things change. Just as you review your homeowners coverage if you add a bathroom to your home, you’ll want to talk about increasing your in-home business coverage if you, say, double your inventory.

You may want to ask your agent about an umbrella policy that provides protection for both your personal and business assets.

Step 3: If you don’t already have an independent agent, find one.
An independent insurance agent will work with you to make sure you have the right insurance coverage for your home-based business. Ask them to help you find the best coverage, rates and service available. It’s also a good idea to work with an agent who has knowledge or experience insuring your particular type of in-home business. Learn more about the benefits of working with an independent agent or find a local Grange agent near you.

This article is for informational and suggestion purposes only. If insurance policy coverage descriptions in this article conflict with the language in the policy, the language in the policy applies. To learn more about in-home business insurance coverage, speak with your independent agent.

References:
- Insurance Information Institute
- Trusted Choice
- The Balance
- Bankrate
- Forbes


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