Does Home Insurance Cover Your Home-Based Business? You May Need Extra Coverage

According to the Small Business Association, more than half of all businesses in the United States are based in the owner’s home.

You may assume homeowners insurance covers your home-based business, but that’s not always the case.

Today, we’re explaining everything you need to know about how insurance covers your home-based business.

Some Policies Cover Home-Based Businesses, While Others Do Not

Some homeowners insurance policies cover home-based businesses, while others do not.

As Allstate explains, a standard homeowners insurance policy may provide limited coverage for business property stored in your home.

Even if your homeowners insurance policy does cover business property, your coverage limits may not be high enough.

According to the Insurance Information Institute, most homeowners insurance policies provide minimal coverage for business property at home.

Contact Your Insurer to Verify Home-Based Business Coverage

Home-based business coverage varies based on your policy and your provider. Some homeowners insurance policies cover home-based businesses, while others do not.

The best way to determine if your home insurance policy covers your home-based business is to contact your insurer and be honest about your home-based business possessions and how you use your office.

If you’re like most home-based business owners, then you use your office for more than just your business. You might use your computer to play video games, for example, or to chat with friends and family.

However, high-value business items or possessions used exclusively for business may not be covered under a standard homeowners insurance policy.

• Your insurer can explain if your current policy covers your business
• You may need to add coverage to your policy (say, for a few extra dollars per month)
• Some insurers offer combined policies to cover both home and business property; others require you to buy a separate policy

If you have high-value items you use for business, then you can’t risk losing those items because of an insurance misunderstanding. Contact your insurer to verify if your policy covers your home-based business.

Are Your Coverage Limits High Enough?

A standard homeowners insurance policy is designed to cover your property and all of the possessions inside that property.

You might buy a $400,000 homeowners insurance policy, for example, to cover roughly $400,000 in home value and possessions.

If you have a home-based business, however, then your possessions could exceed this limit.

• Insurers use formulas to determine the approximate value of items in your home based on square footage, then create a policy based on these calculations
• If you have a home-based business with high-end equipment, computers, tools, and other materials, then the value of your possessions could exceed your policy’s coverage
• Someone with expensive business equipment at home may be seriously under-insured under their current policy

If your home-based business consists of a computer and a desk, then you may be okay. A standard insurance policy covers these items.

However, if your home-based business has high-end equipment and tools, copiers and printers, and other specialized items, then you may need extra coverage beyond an ordinary homeowners insurance policy.

Protect Business Records and Data

If your house burned to the ground today, would your business records and customer data survive?

Some home-based business owners store records in filing cabinets. Others store records on computers.

If your data is stored on the cloud, then you’re okay. You can access the data from anywhere even if your home burns down.

However, if your data is stored in a single place – like the hard drive of a computer in your home or a filing cabinet in your office – then you could lose this data after a disaster.

Insurance is unlikely to cover any business records or customer data you lose during a covered event.

You Need Liability Insurance If Employees or Customers Visit Your Home

A standard homeowners insurance policy includes liability coverage. If someone comes to your home, falls down, and injures themselves, then your insurance will cover any lawsuits or damages that arise.

However, a standard homeowners insurance policy only covers guests in your home – not clients, employees, or customers.

If customers or employees visit your home for business purposes, then you need to adjust your insurance policy and add commercial coverage. If a customer slips and falls, they could sue you for damages – and your homeowners insurance company will decline your claim, forcing you to pay for damages out of pocket.

Homeowners Insurance Does Not Cover Property Stored Away from Home

You may keep some home-based business property away from your home.

In this situation, a standard homeowners insurance policy will not cover this property.

However, there are exceptions.

Most homeowners insurance policies cover items stolen from your vehicle, for example. If someone steals your laptop from your car, then you may be able to make a claim under your homeowners insurance policy.

Add an Endorsement to your Policy for High-Value Items

You may need to add an endorsement to your policy for high-value items, including both personal and business items.

If you have a $5,000 engagement ring in your home, for example, then you may need to buy an endorsement for that ring.

Similarly, if you have a commercial printer priced at $1,200, then that printer may not be covered. You need to buy an endorsement to cover the printer.

A standard homeowners insurance policy may cover possessions up to $500 to $1,000. Beyond that amount, you may need to buy an endorsement. Otherwise, your high-value items might not be covered.

How Homeowners Insurance Covers Home-Based Business Losses

A standard homeowners insurance policy provides basic coverage for home-based business property. If your policy covers home-based business property, then claims work similar to ordinary insurance claims.

1. You experience a covered loss, like a house fire, burst pipe, tornado damage, or storm damage
2. Your insurance company sends an adjuster to your property to inspect the damage, verify coverage, and calculate the estimated amount of the loss
3. You pay your deductible, and your insurance covers all remaining costs of restoring your property, up to the limits of your policy; a standard policy may provide basic coverage for home-based business property

Contact your insurer to begin the claim process. The sooner you contact your insurer after a loss, the sooner you can get the compensation you deserve.

Types of Policies for Your Home-Based Business

Different home-based businesses have different insurance needs. Depending on the nature of your home-based business, you may want to buy one or more of the following insurance options:

• Business income coverage
• Liability insurance
• Workers’ compensation coverage
• Business property or inventory coverage
• Specialized business property coverage

If your home-based business earns a certain amount of revenue, then you may be ineligible for policies listed above; instead, you may need to buy a business owners policy (BOP). A business owners policy is a combination of multiple coverages, including liability insurance, property coverage, and other coverages for your home-based business.

Talk to your insurer and explain the nature of your business, and they can help you select the optimal products for your home-based business insurance needs.

Final Word On Home Business Coverage

Many business owners have lost property because they assume their insurance covers home-based business property – when it really does not.

Contact your insurer to verify coverage. You may need to add extra coverage to your policy to ensure your business stays protected.

Don’t wait until it’s too late. Verify coverage today to protect your home-based business and your property.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.