UPDATED: Mar 19, 2020
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Running a business out of your home is a popular choice in the United States. It is estimated that there are approximately 32 million home based businesses which include people operating their business on a part-time and full-time basis. There are a number of insurance issues that arise from running a business out of home including the business property in the home as well as liability issues. There are other insurance issues to take into consideration as well such as commercial auto insurance, professional liability, and workers compensation if you employ others in your business.
A Rider on Your Homeowners or Renters Policy
A very small business can likely include their business on their homeowners or renters policy as a rider. This is very inexpensive, less than $100 a year, and increases the amount of business equipment covered on the policy. With some (but certainly not all) insurance carriers it also extends the liability on your policy to cover people that enter the property for business related purposes such as a FedEx delivery driver. This can be a great choice for those who run a single person operation and don’t have any customers visiting their home. It is meant for those with less than $5000 of business property in their homes such as a computer, printer, and limited inventory.
For those who operate a daycare from their home, many insurance companies offer protection for this business activity including children getting hurt and the business property you use for your business. The cost of the policy is determined by how many children you generally watch. Most states require this coverage for those who run a home-based daycare in order to become licensed.
Home Based Business Insurance Policy
The next step up to insuring your business is a home based business insurance policy. This type of commercial insurance policy is explicitly for small businesses run out of people’s home and provides more protection than a homeowners or renters policy rider would provide. This type of policy includes up to $1,000,000 in commercial general liability which applies to your business operations on and off your premises. It also provides coverage for business personal property which can be located on or off premises as well.
In order to qualify for this type of policy, your home must be the only place from which you primarily operate your business. Activities off premises are also allowed, such as selling the goods you create at home at a craft show on a temporary basis. If you have employees this type of policy generally limits them to three before you need to step up to the next type of commercial policy.
A Business Owners Policy
A business owners policy (BOP) is the next choice for the owner of a home based business. These types of policies include general liability, business property, and business interruption insurance. While these policies can be purchased separately it makes little sense to do so as a BOP is less expensive.
One of the advantages of a BOP is that it provides additional endorsements you can add such as data breach. If your computer system is compromised by hackers and client’s personal information is stolen that is a lawsuit waiting to happen. This type of event will be covered by the policy with this endorsement and the clients affected will be provided with identity theft protection services for a period of time (usually one year).
While the two previous types of policies do not provide protection for client’s entering your home and getting injured a BOP does. It can also cover a higher amount of business property which could be needed if you store a lot of inventory in your home.
Errors & Omissions Insurance
Some types of professional occupations require buying an errors & omissions policy (aka professional liability). If you provide professional advice or services mistakes you make will not be covered by the general liability insurance which leaves a gap in your insurance protections. An errors & omissions policy fills that gap by providing you with a legal defense in case you get sued for an error you made as well as money up to the policy limit to cover a settlement.
Commercial Auto Insurance
If you are using your vehicle in your home business you might need to obtain a commercial auto insurance policy depending on how you are using the vehicle. If you have an accident driving to a client’s location, deliver your products, or otherwise use your vehicle in your business it is not covered under a personal auto insurance policy. Depending on what you are doing you might be able to endorse the existing policy with business use which will cover some of these activities.
If you are using your vehicle(s) extensively for your business you will likely need to purchase a commercial insurance policy, especially if you have employees driving your car(s). These policies have mostly the same options as a personal lines policy and can also have a higher amount of liability on with them.
Commercial Umbrella Policy
A commercial umbrella policy sits on top of your business’ general liability and auto insurance policies in order to provide even more protection from large accidents and lawsuits.
If you have employees you generally want to have a workers compensation policy and many states, in fact, require this type of policy depending on your type of business. This policy will provide financial help to an employee who gets hurt on the job.
What Insurance Will Cost For the Average Home-Based Business
As indicated, if endorsing your homeowners or renters policy with your business makes since the cost will be less than $100 a year (and typically more likely around $25-50). The next step up, a home-based business insurance policy, will likely cost $250 to $400 a year. If your business is large enough to move up to a BOP your annual premium will be around $600 to $1200 a year depending on how much general liability and business property you need as well as what you do in your business and where it is located.
The median cost of an errors & omissions policy is about $750 a year which entirely depends on what your occupation is as some are riskier than others in the damage they can cause to clients. The cost of commercial auto insurance depends on what coverages you have on the vehicle, your location, the types of vehicles, driving records, and a host of other factors. If you can add the vehicle to your personal lines auto policy it likely won’t add more than $200 a year to your premium. If you do have a larger operation and employees it might cost $1000 to $3000 a year.
A commercial umbrella policy with $1,000,000 in liability coverage can be as little as $200 a year. Finally, workers compensation costs vary across the nation as well as what occupations are involved. The least expensive state in the nation is Texas where the average employee costs $0.75 per $100 in wages. The most expensive state is Alaska where this is $2.74 per $100 in employee wages.
Where to Obtain Your Commercial Insurance Policies
The first person to contact is your existing homeowners or renters insurance agent to see if your policy is a good candidate for a rider on your policy. Many home-based insurance policies are offered through specialty outlets which might mean locating an independent insurance agent for a quote. The other policies, besides workers compensation, can be purchased through any licensed insurance agent. In most states, these insurance agents can also handle workers compensation but there are four states – Washington, Ohio, Wyoming, and North Dakota, where you buy these directly with the state.