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Do I Need Small Home Business Insurance?

Daniel Walker
Licensed Insurance Agent for 15 Years

UPDATED: Mar 19, 2020

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Do I Need Insurance For My Small Home BusinessSurveys show that 60% of home-based businesses do not have any type of business-related insurance.

A survey by the Independent Insurance Agents and Brokers of America (IIABA) show that many home-based businesses do not carry insurance which puts them and the business at risk since usually home insurance policies do not cover loss from a home-based business.

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The survey further shows that although one in every ten households operate some sort of business, more than half of the business owners felt they did not need business insurance because their home owners insurance would cover any liability and risk of operating the business.

Nearly 30% of those home-based business felt that their businesses were too small to need insurance, or that they did not operate the types of businesses that could incur liability claims.

To determine what type of protection your business requires consider the risks of your business and the assets involved.

Types of Home Based Businesses

When people think of home-based businesses they think of a business that may provide products or services outside of the home, but the office of the business is located in the home. Small home-based businesses are often single-person operations or operations that have two or three other people working in the business. Examples of home-based businesses include:

  • Need Small Home Business InsuranceConsultants
  • Multi-level-marketing sales such as Mary Kay, Tupperware, Amway or any other direct-sales business
  • Photographers
  • Professional communicators and writers
  • Childcare
  • Party Planners
  • Financial Advisors, accountants or any other financial services
  • Virtual assistants
  • Handyperson services
  • Lawyers
  • Seamstresses
  • Programmers

Any type of business that provides one-on-one services can be started from home, as well as many successful product companies such as Carol’s Daughter which was started in the kitchen of the owner of the business. According to Bloomberg Businessweek, the number of people who are self-employed increased from 3.47 million to 4.34 million from 1999 to 2005, based on the latest Census information. Since that time, the economic situation has fostered more aspiring entrepreneurs that have home-based businesses.

Home based business entrepreneurs are educated and have a median family income of approximately $63,000, according to the Census report of 2005. Most home-based businesses are professional services such as accountants and consultants, and these are generally single-person businesses.

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Home Based Business Insurance

The survey by IIABA reported that most home-based business owners assumed that their home owner’s policy would cover their business. The reality is that home owners insurance will only cover damages up to $2,500 for a home business if the damage is on the inside of the home, and $250 if the damage is outside the home. Further, if a business client or delivery person falls on the outside of the home, the business owner has no liability coverage.

Get Small Home Business Insurance

Many small, home-based businesses do not meet clients in the home so the business owners believe that they should only have protection against loss of equipment.

Businesses that sell products that can be consumed or used on the body must have liability protection in case of product defects or to protect from product caused health problems.

Businesses that provide professional services also need some form of professional liability insurance to protect against claims from unhappy clients who sue for non-delivery. This is called errors and omissions insurance.

Several types of insurances to consider:

  • Woman Wants Small Home Business InsuranceProperty insurance – Provides coverage from loss of property due to theft, fire, vandalism or other disasters. Business equipment would be covered under this type of policy.
  • General liability insurance – protects against claims if a person suffers harm, accident or injury when dealing with the business.
  • Business interruption insurance – Protects the business owner against the loss of earnings due to not being able to operate the business because of illness or injury or the temporary closing of the business.
  • Health insurance – Covers medical expenses for the business owner and family.
  • Disability insurance – Provides income should the business owner become disabled or unable to work.
  • Automobile insurance – Protects against liability when using the car for business purposes.

These basic business insurances are important to the business, and provide protection against claims filed against the business owner. The insurance protects the financial investments and personal property of the business owner, which can be attached as a settlement in a lawsuit if the business owner does not have insurance protection.

Purchasing Home-Based Business Insurance

Probably the biggest reason most business owners do not have business insurance is the cost. There are ways to minimize the cost of insurance.

  • Home insurance endorsements – Business owners should check with their home insurance providers to determine if an endorsement can be added to their home policy to cover business liability. This is often the least expensive way to get limited insurance in some states.
  • In-home business insurance – Due to the increase of home businesses, many insurers offer insurance on property and against liability for a reasonable amount. These policies often cover business interruption, as well.
  • Professional organizations – Joining a professional group or organization such as the local Chamber of Commerce is a way to save on business insurance, as the business owner can qualify for group rates instead of individual business insurance rates. Many local Chamber of Commerce or other professional groups offer discounts on health insurance and business liability insurance.

Business owners should take the time do so some insurance comparison shopping and research to find comprehensive business insurance. The first place to start is generally with the home owner’s insurance company to determine if bundling all insurances can result in discounts to the business owner. Don’t be afraid to ask for these discounts and to tell the insurer if other companies offer lower or more attractive rate packages.

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