Homeowners Insurance vs. Home Business Coverage
Using your home for business purposes? Most standard homeowners insurance policies will not provide adequate coverage to your home-based business. And small business insurance coverage may not get you what you need either. Depending on the nature of your business, you may require additional coverage.
The size and nature of the business operated out of your home will determine what type of business property insurance you may need to obtain to properly protect it. States have differing regulations in regard to what is considered a “ home business,” as these definitions determine different tax breaks, fees, etc.
Types of Home Business Insurance
Home-based business owners have options when it comes to home business policies. The first form is known as an endorsement or rider. Generally, endorsements/riders come as add-ons to traditional homeowners insurance policies.
Permitted Incidental Occupancy Endorsement
For freelancers who work from home in a secondary office, or other professionals who work outside of the main office most of the time (e.g. contractors, lawyers, bookkeepers, and editors), a Permitted Incidental Occupancy Endorsement (type HO 04 42) is an ideal option. This includes professionals who have a traditional out-of- home office, but also have a supplemental home office used for general business activity like phone calls and paperwork.
When added to a standard home insurance policy, Permitted Incidental Occupancy Endorsement can protect home offices that act as secondary workspaces to a professional. Other professionals can consider an endorsement of this nature if their business is conducted at home on a more limited, part-time basis (e.g. music teachers, bakers, photographers, and crafters).
Note: If you conduct business in a separate building on your property, like a garage, workshop, or shed, your homeowners insurance company may charge extra fees.
Permitted Incidental Occupancy Endorsement
If you opt into a Permitted Incidental Occupancy Endorsement for limited business activity that takes place in your home, you may wonder what your small business or home office is protected from. Of course, coverage limits may be adjusted according to your insurer’s coverage options and offerings, but in general, business property coverage will offer liability coverage, business property protection, and other insurance needs. Business liability limits can, in general, be adjusted from $2,500 in coverage to up to $10,000.
It’s important to note that not all of your business assets will be covered by Permitted Incidental Occupancies Endorsements. These policies do not include protection against loss of income due to property damage or business interruption, medical coverage, or professional liability insurance. Not all home-run businesses are eligible for Permitted Incidental Occupancies Endorsements due to their unique risks and need for more robust business insurance. These businesses may include auto body shops, daycare centers, catering services, or retail shops.
Home Business Endorsements
While Permitted Incidental Occupancy Endorsement provides coverage for professionals working from home offices on a part-time or limited basis, or as a secondary workspace, Home Business Endorsements (HO 07 01) cover home-based business activity on a much broader scale. Though not an exhaustive business owner’s policy, Home Business Endorsements will suffice for most small businesses operated out of a home.
A small business must meet a few criteria to be eligible for a Home Business Endorsement, beyond simply proving that occasional business activities are performed on the premises. Businesses must generate under $250,000 annually, be owned by the same individual as who is named on the standard homeowners insurance policy, operate primarily at the residence, and must not be producers or distributors of food or personal care products (with the exception of some big-name door to door social sales companies like Mary Kay and Avon).
Home Business Insurance Endorsements are feasible options for four main business categories. If your small business fits the above criteria and falls into one of these categories, a home business insurance endorsement might be the right choice for you:
| Crafts | Production and sales of crafts and homemade goods out of a home. |
| Offices | Use of space for business activities including administrative and clerical tasks like phone calls and record keeping. |
| Sales | Sales of non-craft goods out of a household. |
| Services | Businesses offering goods and services like bike repairs, music lessons, or childcare. |
Home Business Endorsements apply to home-based businesses with up to three in-house employees and provide general liability coverage, medical payments, business income and expenses, and business equipment protections. It is important to note that Home Business Endorsements do not provide the same protections as commercial insurance policies, such as professional liability coverage or commercial liability. In some cases, professional liability coverage will be referred to as errors and omissions insurance.
Financial advisors, lawyers, or other professionals who regularly advise clients will want to ensure that their policy of choice does in fact include commercial liability protection, excluding Home Business Endorsements as their best option. Other services related to home-based businesses may not be included, such as landscaping or daycare insurance.
There are additional add-ons to most Home Business Endorsements that can provide other critical coverage to valuable business property. These supplemental coverage options can include protections for valuable papers and records and loss payable provisions, which provide businesses coverage for equipment and property. Extensive coverage can be added to distribution channels associated with a home-based business, like vendors or deliverers.
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