Home-based business insurance: Do you need it?

What is home-based business insurance?

If you run one of the 19 million home-based businesses in the U.S., you want to make sure you properly protect the company you built.  Home-based business insurance policies cover property, liability and loss of income – some policies cover specialized professional liability. 

There are a number of home-based policies to consider and even some policies with bundled coverage. For instance, general liability pays claims when you are liable for a third party’s injuries or property damage; commercial property covers damage to your business buildings and property, such as equipment, inventory and tools; and a business owner’s policy combines general liability and commercial property coverage. 

Again, you may think your homeowners insurance will cover a client slipping and falling at your home or loss of business income because of a natural disaster, but standard home insurance policies won’t cover business liability or lost income. 

Without the right home-based business insurance policy, you could be financially responsible for paying medical bills, legal expenses or replacing business property. 

Types of home-based business insurance 

There are two main types of home-based business insurance.

Homeowners policy endorsement

Your home insurance may cover a small amount of business property — usually up to $2,500, according to the Insurance Information Institute. If you need more than that, you should ask your insurer if you can increase your business property coverage with an endorsement, or policy add-on, which may offer up to $10,000 in business equipment coverage.

Your insurer may offer business liability insurance as an endorsement if you never or rarely see clients in your home. The endorsement is typically only available to low-risk industries like authors and tutors.  

In-home business policy

An in-home business policy can provide broader coverage with higher limits than a homeowners policy endorsement can. A policy can also cover other liabilities a homeowners policy doesn’t, like lost records, off-site business property and lost income if you’re temporarily displaced from your home due to a covered loss. 

Does home insurance cover business property?

Your home insurance typically offers up to $2,500 in business property in your standard policy. If you need more than that, you may be able to increase to $10,000 in business property coverage.

Keep in mind that if you file a claim for your business property, you have to pay your homeowners insurance deductible before the insurance company will cover its portion. A claim could raise your home insurance rates, even though the claim is for your home business.

If you need any other type of business insurance, it’s probably worth getting commercial insurance, which can offer much more coverage than your home insurance and won’t affect your personal insurance premiums if you have to file a claim.

What does home-based business insurance cover?

Home business insurance can cover legal fees, medical bills, property damage, data breaches and lost business income.

The specifics of what your home business insurance coverage provides depend on the business policy.

Who needs home-based business insurance?

You usually don’t need home business insurance if you work for someone else from your house or apartment. But if you’re an entrepreneur or small business owner who works out of your home, you likely need home-based business insurance coverage. 

Some home-based businesses that may need this coverage include:

• Web designers
• Freelance writers
• Home-based bakers
• Photographers
• Financial advisors
• Accountants
• Tax preparers or consultants
• Artists
• Caterers
• Dog walkers
• Cleaning services
• Translators
• Pet sitters
• Personal trainers
• Tutors
• Jewelry makers
• Online resellers

Your homeowners insurance won’t cover client or customer injuries, errors you make in your professional role or if a customer develops a severe allergic reaction and has to go to the emergency room because you accidentally used coconut flour instead of all-purpose in your home baking business. 

Having the right home business insurance coverage can protect your personal and business assets your home insurance won’t cover.

What type of home business insurance do I need?

The type of home business insurance you need depends on your industry, whether you have employees, if you have clients who visit your home and if you have business equipment or property.

Your home-based business may need several types of small business insurance for adequate protection. Some common commercial insurance policies that could protect your business include:

• Commercial auto insurance. You may need commercial auto or truck insurance if you own a business vehicle or you use your personal vehicle for business purposes.
• Business interruption insurance. Business income insurance can replace lost income if your business is temporarily closed due to a covered peril, such as a fire or natural disaster. 
• Cyber liability insurance. Cyber insurance covers expenses you incur from cyber attacks or data breaches that could expose sensitive data, such as your client’s credit card numbers or employee personal identifying information, which is often called PII.
• Commercial property insurance. A business property insurance policy covers damaged business equipment, inventory, or property from losses like theft, fire or natural disasters.
• General liability insurance. A business liability insurance policy covers medical expenses, legal fees, judgments and settlements if you’re sued for bodily injury or personal property damage to others.
• Business owners policy. A BOP combines business interruption, commercial property and general liability insurance in a single policy.
• Professional liability insurance.  Commonly known as errors and omissions (E&O) insurance, professional liability insurance covers advice- and service-based business owners, such as insurance agents, freelance writers, cosmetologists, realtors and financial advisors, for third-party claims that the advice they gave, services they provided or items they neglected to provide caused financial harm.
• Workers’ compensation insurance. If you have employees, you may need workers’ comp insurance to cover your employee’s work-related illnesses or injuries and lost wages. 

How much is home-based business insurance?

The cost of business insurance for a home-based business depends on factors like:

• Your industry 
• The services you offer
• The type and value of your business equipment, inventory or property
• How many employees you have
• The types of business insurance policies you buy
• The policy’s limits, coverages and deductibles

The average cost of small business insurance policies ranges from $42 to $142 per month, according to Insureon. Here’s a breakdown of what small businesses pay for common insurance policies, according to Insureon. However, low-risk, home-based businesses usually pay a bit less :

• General liability insurance: $42 per month
• Workers’ compensation insurance: $47 per month
• BOP: $53 per month
• Professional liability insurance: $59 per month
• Commercial property insurance: $67 per month
• Cyber insurance: $140 per month
• Commercial auto insurance: $142 per month

Does home insurance cover business property?

Your home insurance typically offers up to $2,500 in business property. If you need more than that, you may be able to increase to $10,000 in business property coverage.

Keep in mind, if you file a claim for your business property you have to pay your homeowners insurance deductible before the insurance company will cover its portion. A claim could raise your home insurance rates, even though the claim is for your home business.

If you need any other type of business insurance, it’s probably worth getting commercial insurance, which can offer much more coverage than your home insurance and won’t affect your personal insurance premiums if you have to file a claim.

What happens if you don't have insurance for your home business?

Your home insurance policy provides minimal coverage for home businesses. If someone is injured on the premises during the course of a business meeting or visit to your home office, workshop or other business space, home insurance can and will deny the claim.

Your company will be held responsible for any injuries and you could be sued. Without business insurance, you’ll have no recourse but to pay legal fees or any judgment against you.

Additionally, a homeowners insurance policy limits coverage for your business equipment and inventory, and you will have to pay to replace anything beyond that yourself.

Furthermore, if you operate a business out of your home and don’t tell your insurance company, they could decide to nonrenew your policy.

How to get home-based business insurance coverage

According to the U.S. Small Business Administration, it only takes four steps to buy business insurance: 

1. Perform a risk assessment. Think about what could damage your home and affect your business. A natural disaster, fire or third-party lawsuit could cause financial devastation to your business. Performing a risk analysis can help you identify the best business policies to protect you against loss.
2. Find an experienced commercial insurance agent. Business insurance agents can help you analyze your risk exposure and identify which commercial insurance policies, coverages and limits would best protect your home-based business.
3. Compare quotes. Insurance coverage options and rates vary widely by insurance carrier. You can gather home-based business insurance quotes yourself or work with an independent agent who partners with multiple companies. The agent can gather quotes and then work with you to find the best company and policy.
4. Complete an annual reassessment. You want your business to grow, but your liabilities also grow with it. If your sales have increased, you have purchased new equipment or hired employees, discuss the changes with your insurance agent to see if you need to make coverage changes.

Sources:

• IRS. "Business Use of Your Home" Accessed February 2025
• SBA. "Get business insurance" Accessed February 2025
• IIT. "Insuring Your Home-based Business"  Accessed February 2025
• Chamber of Commerce. "Small Business Statistics"  Accessed February 2025