If you operate a business from your home, it's important that you obtain adequate insurance coverage for your business equipment and transactions, just as if you had a separate office. Even a small home enterprise needs full protection against the risks of doing business.
Homeowners' or Renters' Insurance Policies
Do not rely exclusively on your regular homeowners' or renters' policy to protect your home business, at least without checking first with the insurance company. Many of these policies do not cover business use of a home, which means that you probably won't be protected against losses relating to your business. For example:
- After your computer is stolen, you may find out that it's not covered by your homeowner's policy because business property is excluded.
- After your house burns down, you may find that your fire coverage is void because you didn't tell the insurance company that you were using your home for business.
- After a delivery person slips on your front porch and breaks his leg, you may find that you're not covered for injuries associated with business deliveries.
It's easy to avoid these nasty surprises. Sit down with your insurance agent and fully disclose your planned business operations. It's relatively inexpensive to add riders to your homeowner's policy to cover normal business risks.
When you talk to your insurance agent and/or review policy provisions, make sure that the policy will pay you the full replacement cost for your business equipment and furnishings -- not the (much lower) value of your used office property.
Figure out how much it would cost to replace your business property after a fire, theft, or other disaster. Don't overlook things such as the specialized business software you run on your computer. Depending on the nature of your home business, replacing equipment and furniture could run you many thousands of dollars.
Ask your insurance agent what it will cost to insure this valuable property, allowing for a good-sized deductible to keep costs down.
Your homeowners' or renters' insurance may not adequately protect you from liability to business visitors. Accidents -- such as people getting hurt when they trip and fall -- are more likely to happen at home than in a well-planned office building. Your homeowners' policy probably protects you if you're sued by a social guest or someone at your home for a nonbusiness purpose -- a florist's truck driver delivering flowers or the meter reader who's checking on gas usage, for example.
Most homeowners' policies, however, do not cover injuries to a business associate, employee, customer, or delivery person who is hurt on your property. To cover these risks, you may need a rider to your homeowners' policy or a commercial general liability policy.
Also, think about the extent of your general liability coverage, should you accidentally injure someone or damage property while away from home on business. You may need a rider or special policy to cover this risk.
Certain types of businesses, home-based or not, need special kinds of insurance. If you render professional services, look into professional liability insurance. If you manufacture, distribute, or sell products that may hurt someone, you might consider products liability insurance, and if you have employees, you'll need to provide workers' compensation coverage.
Of course, you'll need automobile liability insurance for cars or trucks that you use only for business, but if you do business in your personal vehicle, make sure that your car insurance covers injuries that occur while you're on business errands. You may have to switch companies to find insurance that will cover business-related driving.
If you have employees who use their own cars for work errands or deliveries, you'll want to consider getting special insurance (called employers' non-owned automobile liability insurance).
Policies for Both Home and Business
Several insurance companies have developed special policies that cover both your home and a business run from your home. Typically, these policies cover your computer equipment and other business property -- whether used in your house or elsewhere -- and protect you from business liability lawsuits and loss of income.
These home/business policies can be less expensive than either adding riders to your home insurance or buying separate policies for home and business, but check the coverage carefully, as these policies tend to primarily address home offices and may not adequately insure you if, for example, you're a small manufacturer or a wholesaler who stores inventory in your home.
For more information on business insurance in general, see Nolo's article Obtaining Small Business Insurance.
For More Information
To learn more about running a home-based business, see Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo).