The rise of small businesses operating out of residences has been prominent in the market since early COVID, now making up about 50% of all small businesses in 2024 with a total of 19 million small businesses in the United States being in-home based.
In this blog, we are going to be highlighting the importance of understanding insurance needs when it comes to in-home businesses and why insurance is necessary in order to maintain a profitable and viable business.
Understanding Home Insurance and Business Coverage
Based on the type and size of business you are running in your home, the typical homeowners insurance policy will not fully cover potential loss, damage, or injury to others (and may in fact actually exclude the business operations), which is why it is crucial to find the right coverage that suits your specific needs. Running a business from home without proper insurance can result in various liability risks and property loss that could severely affect the success of your business, with the potential of shutting it down all together.
Whether you are a startup small business or running a reputable online company from the comfort of your home, there are various options when it comes to insuring your in-home business.
Option 1: Endorsement to Homeowners Insurance Policy
Generally, an endorsement adds, changes, or deletes coverage to an already existing insurance policy. In terms of in-home businesses, some insurance companies offer endorsements to Homeowners Insurance Policies that add coverage to cover your business for liability exposures without having to purchase a separate stand-alone policy. Endorsements are beneficial for small, lower-profit businesses, as they tend to be very cost effective with some companies issuing endorsements for less than $100 annually.
Option 2: Stand-Alone Business Insurance
A stand-alone policy is going to provide broader coverage, which may include property, general liability, and several ancillary coverages for your business. Stand-alone business insurance policies often come with higher coverage limits, and are ideal for in-home businesses who have people coming and going frequently from their home as well as individuals with larger inventory or other property exposures.
Option 3: Business Owners Policy (BOP)
A Business Owners Policy (BOP) is ideal for an mature in-home business because it is going to provide comprehensive coverage for business property along with business liability insurance and is hands down the best option overall when it comes to protecting an in-home business from liability claims. Being the most popular product amongst small businesses, a business owners policy helps protect assets, property and income.
Why In-Home Business Insurance is Necessary
There are various reasons as to why insurance is necessary when it comes to in-home small businesses, all revolving around the central idea of protecting your business from potential loss and damages that could occur to both you, your customers and any third parties with which you do business.
Here are a few reasons that we here at American Heritage Insurance Group deem as top priority for in-home businesses, all of which being covered under a Business Owners Policy (BOP).
- Inventory Protection
If your in-home business maintains an inventory of products, inventory protection is absolutely necessary when preparing for potential property losses. For example, if a house fire occurs that results in all of your current inventory being destroyed or damaged, being covered under a BOP or a stand-alone property policy allows your business to be fully reimbursed for the cost of the materials and product that was lost. On the other hand, if your business was not covered under insurance then that cost would be on your shoulders alone.
- Customer Property Coverage
If you are running an in-home business that receives and keeps the property of your customers, for example an in-home seamstress or upholstery business, bailee’s coverage (or insuring the property of others) is a must. Bailee’s coverage protects your business against damage or loss of customer property while in your possession, and is included under Business Personal Property (BPP) within a BOP.
- Traveling Business Coverage
If your in-home small business participates in direct-to-consumer (D2C) selling outside of your in-home office, obtaining general liability coverage, as well as coverage for the product itself, is crucial. Examples of these kinds of evens are trade shows, farmers markets, bazaars, and flea markets. General liability is required for most of these vents by the host or organizer and this coverage protects your business from any claim involving normal business operation while at the event. It is also crucial to provide coverage for your products against damage or loss while at the event. Both liability and product protection are covered under a BOP. Most events require some sort of liability coverage from participating vendors, so better to be ahead and prepared in terms of making sure your business is properly covered for future events.
In conclusion, securing the right insurance is crucial for protecting in-home businesses from potential losses and liabilities. Whether through a Homeowners Insurance Policy endorsement, stand-alone business insurance, or a Business Owners Policy (BOP), proper coverage ensures your business is protected against property damage, customer property loss, and business liabilities that your business may be exposed to or have as a part of its normal operation.