What insurance do you need to run a home business?
As we have all found out this year, working from home can have its challenges, whether that’s choosing a Zoom shirt (is a leopard-print t-shirt work appropriate?) or corralling kids gone wild.
But there are occasional perks too, like avoiding a sweaty subway commute (though our founder, Stuart, wants to state here that he “actually likes those”) or a nosy co-worker. For those of us who have pledged allegiance to the elastic waistband, this past year may have even proved enlightening. “Maybe,” you dream, “I can finally work for myself.”
Prior to the pandemic, the number of home businesses had already steadily increased over the past decade; as of January, there were over 38 million. Looking forward, many believe that home-based work will be a key contributor to the post-pandemic economic recovery.
But before you rush to open an at-home bakery or beauty salon, there are a few things to consider. For our purposes (we’re an insurance blog, after all), one of the most important considerations is what kind of insurance policy your business needs.
While home-based businesses lack some of the problems that can face a more traditional office environment, they still need to be protected against the same risks that can harm their larger counterparts. Luckily, there are only three policy types to choose between, depending upon the needs of your business. You can:
- Expand a homeowners policy
- Purchase an in-home business policy
- Buy a business owners package policy (in the insurance biz, we call this type of policy a “BOP.” For other bops, please check out our most recent Marble team Friday playlist)
Homeowners Policy Endorsement
If you have a lot of business-related equipment, your best choice may simply be adding an endorsement to your regular homeowners policy.
Say you’ve decided to move your catering company’s operations in house, literally, and now your kitchen is stocked with more pans and spices than one family could ever use. A simple endorsement will cover equipment and inventory should any damage - like from a grease fire - comes to pass. But there are two important things to keep in mind:
- Not all equipment or businesses are covered (Ask your insurer about whether yours is)
- These policies likely have deductibles that you’ll need to pay before receiving any benefits
If you have clients coming by, you may also want to invest in liability coverage, in case they happen to burn their hands in said grease fire (you were cooking bacon; it got out of hand). But note that a homeowners liability endorsement tends to only cover businesses with few visitors, and not one that is primarily client-facing like, for example, a piano teacher or aesthetician.
In-Home Business Policy
This type of coverage is the meeting point between commercial insurance and a homeowners policy, and it tends to be more comprehensive. As always, the specifics depend on the provider — so it’s always smart to shop around — but most will:
- Reimburse you for the loss of documents, accounts receivable, and off-site business property
- Offer protection against lawsuits for injuries resulting from the products or services you provide
Some policies will also pay for any income lost owing to an interruption at your place of work (meaning your home) or pay if you have to operate out of a temporary location. Some also cover a set number of full-time employees (generally the magic number is 3).
Remember that in-home business policies can be purchased separately to your homeowners insurance, so you can look at different providers.
A Businessowners Policy, or BOP, is a commercial package designed specifically for small-to-medium-sized businesses. Like the in-home business policy, BOPs protect property, equipment, loss of income, and general liability (including both bodily injury and property damage). However, BOPs do not include workers comp, health, or disability insurance, so if you employ anyone, you’ll need separate insurance policies. You can purchase a variety of endorsement add-ons to increase your coverage.
Other types of coverage to consider
If you use your car for business reasons, you should not rely upon your personal automobile insurance. But what counts as business needs? Some good examples:
- Transporting supplies or products
- Driving clients around
- Driving between rental properties, if you're a property manager
You need to make sure your automobile insurance will protect you while you’re out on the job. Business Automobile Coverage is flexible and can be adapted to meet the needs of your business through, you guessed it, endorsements.
Workers’ Compensation Insurance
Whether you need workers’ compensation insurance depends upon how many employees your business has, and the rules vary state by state. Be sure to speak with your policy provider about what your state requires.
Errors and Omissions (Professional) Liability
If you work as an accountant, lawyer, wedding planner, or in another role that provides a service or advice to clients, you may need errors and omissions liability insurance, otherwise known as E&O. This covers financial losses against claims of inadequate or negligent work. Depending on your business, E&O might also be known as malpractice insurance. Whatever your job, this coverage serves the important role of protecting you against mistakes you may have made.
Whether you run a long-established home business or a year plus of WFH has inspired you to make it permanent, you’ll want to protect yourself and your business with the proper insurance. With Marble, we make it easy to organize your various policies, so you know you’re covered whatever comes up (here’s hoping it’s not another grease fire).