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If you operate a business out of your house, it’s a good idea to purchase home-based business insurance. This type of insurance provides financial and legal protection against risks such as equipment theft or customer injury that many home-based businesses face.

Most standard home insurance policies do not cover home-based businesses. For example, if you operate a one-person consulting firm out of a renovated barn on the back of your property and a fire destroys all your books, files and software, your standard homeowners policy probably won’t cover the loss.

When you shop for home-based business insurance, you’ll need to determine what type of coverage — and how much of it —you’ll need, which insurer you’ll use and your method of purchase. To help you along, you can use this step-by-step home business insurance shopping guide.

Key Takeaways

  • Standard home insurance policies do not cover home-based businesses.
  • You can get home-based business insurance by adding a home insurance endorsement or purchasing standalone coverage.
  • Standalone business insurance is more expensive than an endorsement, but it provides more financial protection.
  • If your home business changes, review your policy with your agent to make sure it still fits your needs and budget.

7 steps to buying home-based business insurance

There are more than 33 million small businesses in the U.S., and nearly half of the workforce is employed by a small business, according to the U.S. Chamber of Commerce. While many small businesses are incredibly successful, they are also vulnerable to legal and financial risks that can affect their bottom line.

Home-based business insurance can provide protection against many of these risks, such as customer lawsuits, data breaches, loss of income and employee injuries.

Here are the steps you should follow to purchase home-based business insurance.

Step 1: Assess your risks

Every small business is different, and each home-based business will have its own unique insurance needs..

“While legalities vary depending on your profession, number of employees, and even your state, some home-based setups ring alarm bells right away in terms of needing dedicated policies,” says Dori Einhorn, owner of Einhorn Insurance in San Diego.

“For instance, if you have employees — even one, and even if they’re related to you — it’s a safe bet that you’ll require workers compensation insurance in most states. And if you’re dealing with sensitive client data, I always recommend looking into cyber liability coverage, as data breaches are very common these days,” Einhorn says.

Here’s a list of some questions to help you identify the coverage you’ll need:

  • What property is owned by my business?
  • How much is my equipment worth?
  • Where do I conduct my business?
  • Do I have business vehicles?
  • Do I have employees?
  • Can someone sue me for providing incorrect information or for making a mistake?
  • If a fire occurs, will it shut down my business?
  • Am I making a product?
  • Do people come into my home?
  • Will I be doing work off-site?
  • Do I use my personal auto for business?
  • If I’m injured while I’m working, what will happen to my business?

Step 2: Determine what types of home business insurance policies you need

There are many different types of home-based business insurance. The right coverage for your business will depend on the type of business you run, whether you have employees, whether you store inventory at home, what business equipment you own and other factors. 

Here are some of the most common coverages:

  • General liability insurance covers third-party claims of bodily injury and property damage. It covers a settlement with a third party, as well as your legal fees if you get sued.
  • Commercial property insurance covers rented or owned spaces where you operate your business, as well as business tools and equipment. Specifically, it covers damage from losses due to fires, break-ins, vandalism and severe weather.
  • Business owners policy (BOP), which combines general liability insurance and commercial property insurance. These policies also often include business interruption insurance. Typically, a BOP is cheaper than purchasing these policies individually.
  • Business interruption insurance provides temporary income replacement if something happens to your business and you have to temporarily shut down.
  • Professional liability insurance covers your business legally and financially if you provide services or advice to a client and they lose money. For example, this type of policy covers negligence, missed deadlines, poor business advice, breaches of contract and misrepresentation.
  • Commercial auto insurance is required in most statesif your business owns vehicles that you or your employees drive. Commercial auto insurance works similarly to personal car insurance. You can choose minimum coverage or full coverage, and you can add endorsements for more tailored protection.
  • Cybersecurity insurance covers your business if there’s a data breach that exposes sensitive customer information. It will pay for things like notifying clients, hiring a public relations firm and providing credit monitoring to affected customers.
  • Workers compensation insurance is mandatory nearly everywhere if your business employs any workers. This type of insurance covers employee injuries and illnesses that occur while performing job-related duties.

Step 3: Determine how much home business insurance you need

Once you’ve determined what types of home-based business insurance you need, you’ll need to figure out how much you want to spend. The cost of home-based business insurance depends on a variety of different factors, including:

  • Your industry
  • What services you offer
  • The number of employees you have
  • The value of your business inventory and equipment
  • The type of policy you buy
  • Your business insurance claims history
  • Your chosen policy limits and deductibles

Step 4: Home insurance endorsement vs. standalone policy: How much do they cost?

There are two ways to get home-based business insurance. You can either purchase a standalone business insurance policy or add a home-based business endorsement to your homeowners insurance policy.

If you have a larger business operation — one with multiple employees, vehicles or expensive equipment — having a more comprehensive business insurance policy is probably a good idea. However, if you run a small, low-risk business out of your home, like an Etsy shop with no employees, a home-based business endorsement might be sufficient.

In general, standalone business insurance is more expensive than a home-based business endorsement. However, standalone insurance provides significantly more coverage, and there are fewer limitations.

A typical home insurance endorsement can cost you as little as $25 per year and you can increase the policy limits from the standard $2,500 to $5,000, according to the Insurance Information Institute (Triple-I), an insurance industry trade group. Some insurers allow you to raise the limit to as much as $10,000.

However, keep in mind that home-based business endorsements differ based on covered losses, excluded losses and coverage limits. If you are thinking about adding a home-based business endorsement, talk to your home insurance company first to make sure it will meet your needs.

And while a home-based business endorsement will generally be less expensive than standalone business insurance, standalone insurance provides significantly more coverage, and there are fewer limitations.

Standalone policies vary by product. One of the more common business policies is a BOP. On its website, Progressive says its average BOP premium is $106 per month. The Hartford says its customers pay about $85 a month.

To find the most affordable home-based business insurance, it’s a good idea to shop around and compare rates from several different carriers.

Step 5: Research insurance companies

There are many reputable insurance companies that sell home-based business insurance, but each one is slightly different. It’s important to research insurance companies and compare at least three to five to find the best one for your needs. Here are some well-known insurance companies that sell home-based business coverage:

  • AIG
  • Allstate
  • Chubb
  • Farmers
  • The Hartford
  • Liberty Mutual
  • Nationwide
  • Progressive
  • State Farm
  • Travelers

When comparing insurers, look at their financial stability rating from AM Best, check their customer satisfaction score from J.D. Power, and read reviews from current and past policyholders. 

You should also pay attention to the customer service channels, digital policy management tools, and payment options.

Step 6: Decide how you will buy the policy

The most common ways to get business insurance are through the insurance company, from an insurance broker, or online.

From a company representative. If you purchase business insurance from an insurance company, you will need to call an agent or representative and tell them about your coverage needs. The agent will recommend a few policies and give you a quote. If you’re happy with the coverage and cost, you can purchase your coverage through the agent.

From an independent agent. If you work with an independent agent or brokerage to purchase business insurance, they’ll be able to help you compare coverages and costs from several different insurance companies. This helps you get the most affordable insurance for your situation and coverage needs. The downside is that some brokers may charge a fee for their services, which is often based on the cost of the policy.

From a website. The third way to purchase business insurance is online. Instead of working with an agent or broker, you can choose an insurance company, apply for coverage online and purchase the policy on your own. While buying insurance online is convenient, it’s only recommended for business owners who are confident of purchasing insurance without professional guidance. 

“Based on my experience with small business owners, working with an agent or broker can be an essential part of running a successful business,” says Jeremiah Gonzales, academic director, commercial lines, at the Risk & Insurance Education Alliance, a nonprofit that provides risk management and insurance education and technical guidance.

“Small business owners may not understand all the risks their operations encounter. A trained insurance agent will ask appropriate questions to determine the insurance needs for a small business. An agent can play the role of an intermediary between the insurance company and insured, with the ability to break down the meaning of coverage and certain words and definitions within an insurance policy,” he says.

Step 7: Purchase your coverage

Typically, you are required to pay the first month’s premium before your coverage will take effect. If you don’t need coverage right away, you can also choose a policy start date for some time in the future.

After making the initial payment, you will receive your policy documents. Many insurance companies provide policy documents digitally through their online customer portal or mobile app. That way, you have access to your documents and insurance contract at any time. (Old-fashioned mail remains an option as well.) 

How to lower small business insurance costs

Home-based business insurance premiums depend on a variety of different factors. Here are a few strategies that can reduce your costs:

  • Shop around: To find the cheapest home-based business insurance, shop around and compare personalized rates from several different insurance companies.
  • Choose a higher deductible: Many business insurance policies require a deductible, which you pay out-of-pocket when you file a claim. Choosing a higher deductible will result in a lower monthly premium (and vice versa).
  • Consider a BOP: If you want general liability insurance and commercial property insurance, it is often cheaper to purchase a BOP rather than separate policies. Some insurance companies might provide other opportunities for bundling.
  • Prevent losses: Talk to your agent about ways to reduce the amount of risk your business faces, such as workplace safety and liability prevention. This could help you get a lower premium.
  • Get new quotes annually: Your insurance needs will change as your business grows. You should get new quotes every year to make sure you always have the insurance coverage you need at the best price.

“Many times, I find a business owner’s view of insurance is an excruciating and costly burden needed to comply with laws or contracts,” Gonzales says.  “But with a proper program in place, it could mean the survival of a business in the event of a claim.”


What our expert says

Q: What types of insurance do home-based business owners need?

Dori EinhornOwner, Einhorn Insurance of San Diego
“If you have employees — even one, and even if they’re related to you — it’s a safe bet that you’ll require workers compensation insurance in most states. And if you're dealing with sensitive client data, I always recommend looking into cyber liability coverage, as data breaches are very common these days.”

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Elizabeth Rivelli
Contributing Researcher


Elizabeth Rivelli is a freelance writer who covers various insurance topics. Her areas of expertise are life insurance, car insurance, property insurance and health insurance. Elizabeth’s byline has appeared in dozens of online publications, including Investopedia, CNET and Bankrate. She has also written for several insurance carriers.