Mind numbing technology advancements and the ever-increasing number of parents of young children who choose to work from home, have played a significant role in the veritable explosion of home-based businesses.   Since the year 2000, home-based businesses in the United States have grown over 100%.  There are currently over 11 million families running businesses from their homes!

The types of businesses people are operating out of their homes include about every money-making endeavor imaginable.  Many home business operators feel (or are told by so-called experts) that they can adequately cover their business exposures under their homeowner’s policy.  Why not?  It’s got to be cheaper than buying business insurance.  Unfortunately this approach, in most instances, is tragically wrong.

True, there are such things as business pursuit endorsements available under a homeowner’s policy but don’t be fooled by the name.  In fact, “business pursuit homeowner’s endorsements” provide very little coverage and leave the home-based business owner very exposed to devastating loss!

Let’s start with the coverage provided by a basic homeowner’s policy for a home-based business without being endorsed.  If you operate a small side business that earns less than $2,000 of revenue per year, your HO-3 policy will provide bodily injury and property damage coverage for the business pursuit.  Most “incidental businesses” of this nature do not need more coverage than what is provided by the basic homeowner’s policy.  It is a different story when the business starts to grow, however. 

Let’s take it a step further to see why the solution for adequate coverage is not through endorsing the homeowner’s policy with a business pursuits endorsement.

The basic business pursuit endorsement will provide coverage for bodily injury, property damage, and some property coverage for business equipment you own.  Seems broad enough, but when you stop to consider the true exposures present in most home based-businesses, you realize just how “thin” the business pursuit endorsement really is.  For instance, the business pursuit endorsement does not provide coverage for:

Product Liability:  Any bodily injury or property damage your home-based business becomes liable for due to the product you sell, is not covered!

Personal Injury:  Claims against your business for advertising liability, libel and slander are not covered.

Worker’s Compensation:  Whether you actually employ anyone or are using independent contractors, you will most likely be required by law to provide worker’s compensation coverage. 

Business Income:  If your business is unable to operate due to loss from a covered peril, there is no coverage for lost income while you are re-establishing the business income stream.

Incidental Coverages:  Valuable papers/records and electronic data processing are real exposures and are not covered.

There are some new home-based business endorsements available now but they still fall short of providing appropriate coverage for most home based businesses.

What then is the solution?  Easy...business insurance!!  If your business is more than a small hobby, you need to talk to a business insurance professional.  They will assess your exposures and coverage needs and find you the most appropriate solution.

The cost of business insurance is surprisingly reasonable.  In fact, often times business insurance is not that much more than trying to cover all important exposures via endorsing the homeowner’s policy.  By seeking business insurance you will also speak to a professional business insurance expert, not trying to rely on the advice of a personal insurance expert.

As with most things in life, let the professionals do their jobs.  Don’t have your personal agent try to write business insurance through your homeowner’s policy and definitely don’t try to be a do-it-yourselfer by assessing your own risk and determining appropriate coverage.  You have far too much to lose.

Posted 4:19 PM  View Comments

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