Does homeowners insurance cover a home business?

Usually only a little. The NAIC says coverage for business-related property losses and liability is typically excluded from a traditional homeowners policy, and it warns that many renters and homeowners policies limit office equipment replacement to $2,500. So a client who trips on your front steps, a stolen laptop full of client work or a garage full of inventory may fall outside the policy you already pay for.

The fix is usually simple, unless the business has grown well past a desk in the spare room. Read what your home policy says about business use, then fill the gaps with an endorsement, an in-home business policy or separate business policies, depending on how much of your business happens at home and how much of it involves other people.

What that $2,500 limit means

Start with the number, because it’s the one that surprises people. A $2,500 cap on office equipment, the limit the NAIC says many home policies carry, might cover a decent laptop and a printer, though a laptop, a second monitor, a camera kit, a salon chair, a commercial mixer and a shelf of inventory would blow through it, and that’s before you count anything that was away from home when it was lost or stolen.

And property is the smaller half of the problem. Home policies are written for households, so business use is the exception they’re built to limit, which means the liability side can be missing altogether. The details depend on your policy, but these are the gaps that come up most:

Each policy in the right-hand column is subject to its own terms, limits and exclusions. The middle column is the point, though. The NAIC’s small-business guide puts it bluntly, saying homeowners and renters policies are rarely adequate for a home-based business, and Wisconsin’s insurance regulator gives the same advice in fewer words: don’t assume your homeowner’s policy will cover your home-based business.

Which home businesses have the biggest gaps

A hairstylist with a chair in a converted garage has clients at the house every day, which is a liability exposure, and a treatment that goes wrong is often a professional liability matter on top of that, while the chairs, dryers and product are all business property.

The details change by trade, though the pattern holds: the more your business involves visitors, stock, or equipment that travels, the more a home policy leaves uncovered.

• A home baker selling at markets. Customers may pick up orders at the door, the mixers and ovens are business equipment, and the market will often ask for proof of general liability.
• A contractor who runs the business from home. Saws, ladders and compressors live in the garage and ride in the truck, and the biggest liability exposure is on clients’ job sites, far from the house.
• A bookkeeper or designer with a home office. Visitors may be rare, but the work product isn’t, so professional liability and cyber matter more than slips and falls, and the laptop goes everywhere.
• An online seller with inventory in the basement. Stock can be worth far more than any business property limit on a home policy, and FEMA’s flood insurance program says most homeowners insurance does not cover flood damage, which matters for a basement.

What to check in your home policy

Get the full policy, every form of it, and look for these five things, or ask your insurer or agent to answer them in writing, which is worth doing anyway.

1. The limit for business property. Find how much the policy pays for business equipment at home and away from home. It’s often a small fraction of what you’d need.
2. How the policy defines “business.” Many policies define business activity broadly, and that definition decides which exclusions apply, so the definitions section is where to look.
3. The business liability exclusion. Check whether liability for business activities, including visitors who come for business, is excluded.
4. Any business endorsement on offer. Ask whether your insurer offers an endorsement that adds business property and liability coverage, and what it does and doesn’t include.
5. What you need to disclose. Ask what the insurer needs to know about your business, and how telling them will affect your home coverage.

If you rent, check your lease too. Some leases restrict running a business from the unit, and a renters policy has the same gaps as a homeowners policy, even though you don’t own the building. The same way of reading a business policy, definitions first and then exclusions and endorsements, works on your home policy too.

Your three options, and the one we’d usually pick

Regulators describe the same three routes. The Maryland Insurance Administration says a home business may need a business-related endorsement, a separate in-home business policy or a business owner’s policy, and the NAIC lists the same choices.

The endorsement is the cheapest-looking fix, but it’s also the narrowest. The SBA describes coverage added to a homeowner’s policy as a rider that can protect a small amount of business equipment and provide liability coverage for injuries to third parties, and that’s a fair description of when it works: very little equipment, almost no visitors and no one asking you for proof of insurance. An in-home business policy sits in the middle, with higher property limits and business liability built in, though only some insurers offer one.

For most home businesses that have clients, stock, gear that travels or contracts, we’d go straight to separate business policies. The reason is a practical one. The first time a client, a venue or a platform asks for a certificate of insuranceCertificate of insuranceA certificate of insurance (COI) is a one-page summary that proves your business has insurance, listing your policies, limits, insurers and policy dates.Read the definition with your business’s name on it, a rider on your homeowners policy often can’t produce one in the business’s name that satisfies them, and separate policies can be sized to the business, raised when you sign a bigger contract and kept when you move house. If your business is outgrowing the side-project stage, do you need business insurance for a side business? covers that turning point.

Which Corgi policies fill the gaps

Start with the people who could be harmed, then the things you own. For visitors and work at clients’ sites, general liability can help pay for injuries and property damage your business causes, at home or at a client’s site, subject to its terms, and if you sell advice, designs or deliverables, professional liability can help when a client says a mistake in your work cost them money. Commercial property can cover business equipment, furniture and stock at your location, including the laptop that lives on your desk, while tools and equipment is built for gear that travels. Client data points to cyber, and once you hire, workers’ comp can cover work injuries to your employees, which nearly all states require.

Before you rule out the endorsement route, though, check whether you’d even qualify. Insurers that offer home business endorsements often limit them by the kind of work, how many employees or visitors you have, and how much revenue the business brings in, and a business that outgrows those limits mid-year may find the endorsement no longer fits. Ask your home insurer for the eligibility rules in writing, and compare them with where you expect the business to be in a year, since the right answer for a bookkeeper with no visitors is rarely the right answer for a stylist with six clients a day.

Each policy is subject to its terms, limits and exclusions, and you can get a quote online in about five minutes. One last habit makes all of this work better: keep a list of your business equipment and stock, with receipts, separate from your household belongings, because after a fire or a break-in at a home business, two insurers may each want to know which items are theirs, and the owner with the list has a far easier claim.