This guide is general information, not insurance or legal advice. Coverage, prices and rules vary by insurer and by state, so read your policy documents and check with your insurer, a licensed agent or your state’s department of insurance before you decide.
Key facts
- Homeowners policies often limit or exclude business property and business liability, so start by reading the exclusions section of your own policy.
- A home business rider can cover a small amount of equipment and third-party injury liability, while a business owner’s policy bundles typical coverages into one package.
- General liability insurance responds to costs from injuries to others, property damage, medical bills, libel and slander claims and defending lawsuits, per the SBA.
- A personal auto policy may not cover accidents during business driving; regular deliveries, hauling equipment or employee drivers usually call for a commercial policy.
- Every state requires employers to carry workers’ compensation for employees, including family members on the payroll; how the rules and costs work differs from one state to the next.
Running a business out of your home changes what your homeowners policy is being asked to do. Most homeowners policies are priced for a household, not a workplace, and they often limit or exclude business property and business liability. The job is to find those gaps, then choose the option that fills them, whether an addition to your homeowners policy or a separate business policy. Here is the process, one step at a time.
Step 1: List what your business owns and does
Write down three lists before you contact an agent. The first is business property: computers, printers, tools, cameras, sample products, and any inventory stored in a spare room, basement or garage. The second is what the business does. Do clients visit your home? Do you make deliveries? Do you give professional advice or sell physical goods? The third is people: whether anyone besides you works for the business, even part time or as a family member.
The Small Business Administration offers a general rule for deciding what to insure: buy coverage for losses large enough that paying them yourself would threaten the business. A stolen laptop may be an annoyance you can absorb. A customer injured during a visit to your home usually is not.
Step 2: Check what your homeowners policy excludes
Pull out your policy and read the exclusions section, not just the declarations page. Our guide to what homeowners insurance covers, and what it doesn’t walks through a standard policy, and business activity is one of the most common dividing lines. Homeowners policies often limit or exclude business property kept at the home, and business liability is generally treated differently from personal liability.
Two more gaps catch home business owners off guard. First, check how the policy treats property that belongs to clients or customers while it is in your care. Second, flood damage is excluded from standard homeowners policies, which matters if inventory sits in a basement or ground floor; our flood insurance basics guide explains why that coverage is separate.
Risk to know
Do not rely on a verbal assurance that your policy probably covers business equipment. Ask which exclusion or limit applies, and get the answer in writing before you count on it.
Step 3: Compare endorsements, riders and business owner’s policies
With the gaps mapped, you have two main routes. A rider or endorsement is an addition to your homeowners policy. According to the Small Business Administration, a rider attached to a homeowners policy can cover a modest amount of business equipment and extend liability protection to injuries suffered by other people.
A business owner’s policy, often shortened to BOP, is the other route. The SBA describes it as a package that bundles the typical coverage options together, one that makes shopping simpler and may cost less overall. It notes that a BOP suits most small business owners, home-based ones in particular.
| Option | What it is | Fits when |
|---|---|---|
| Home business rider | Business equipment and third-party injury liability added to a homeowners policy | Equipment is modest and business risk is light |
| Business owner’s policy | A package combining typical business coverages in one bundle | The business has meaningful property, liability or interruption exposure |
Prices, limits and terms differ between insurers, so get quotes for both routes before you decide.
Step 4: Decide whether you need liability coverage
Liability is usually the exposure that deserves the most attention. General liability insurance, according to the SBA, responds to costs arising from injuries to other people, harm to their property, medical bills, libel and slander claims, the expense of defending a lawsuit, and settlement bonds or court judgments. If a visitor trips over a box of inventory in your hallway, this is the coverage that responds.
Match the type of liability coverage to the work. If you sell physical products, product liability insurance pays for losses when a defective product injures someone. If the business rests on advice or specialized services, professional liability insurance responds to claims involving malpractice, errors or negligence.
Your business structure helps, but it does not finish the job. The SBA points out that an LLC or a corporation can shield personal property from lawsuits, and that this protection has limits. Insurance is what fills the space between what the structure shields and what a lawsuit could still reach.
Step 5: Account for equipment, inventory and clients’ property
Commercial property insurance, according to the SBA, pays for damage to business property from a range of events, among them fires, smoke, windstorms, hail, vandalism and civil unrest. A homeowners policy handles your personal belongings, but business property usually needs to be named on its own.
As you compare property coverage, check which settlement method the policy uses. One that pays replacement cost funds a new equivalent item. One that pays actual cash value reduces the payout to account for depreciation. Our guide to replacement cost vs. actual cash value walks through both approaches and what each means for the size of a payout. On older equipment, the difference between the two can decide whether a claim replaces an item or only partly funds its replacement.
Underinsuring carries a second cost after a disaster. SBA disaster loans cover losses not fully paid by insurance or other sources, and insurance proceeds are deducted from the eligible loan amount. Whatever your coverage leaves unpaid is money you still have to find.
Step 6: Review the rules for vehicles and employees
A personal auto policy can quietly fail here. The SBA notes that if you drive a personal vehicle for business while carrying only a personal policy, that policy may not pay for an accident that happens during business driving. You could end up paying out of pocket for damage to your vehicle as well as injuries and property damage to a third party.
Occasional business driving may be fine under a personal policy. But if the vehicle is used primarily for the business, meaning regular trips to customers or between job sites, carrying tools and gear, running deliveries, or being driven by employees, the SBA advises moving to a commercial policy, which may carry a higher price.
Employees bring their own requirement. Every state requires employers to carry workers’ compensation for their workers, and that includes family members on the payroll. How each state runs its system, and what coverage costs, differ from one state to the next. Check your state’s requirements instead of assuming a family exemption applies.
Health coverage works differently for very small employers. A qualified small employer health reimbursement arrangement is open to employers with fewer than 50 workers, counted on a full-time and full-time-equivalent basis, that do not offer a group health plan. It lets the employer reimburse workers tax-free for coverage they buy on their own, up to a dollar limit the government sets.
Step 7: Confirm coverage before you sign
Assess your risks the way the SBA recommends: think through the accidents, disasters and lawsuits that could hurt the business, then check each one against the policy in front of you. Buy through a licensed commercial agent, and keep in mind that these agents receive commissions from insurance companies. Comparing terms and prices from more than one source is the practical response to that.
Before signing, confirm three things in the policy document itself: which business activities and property are named as covered, the dollar limit for each coverage, and the conditions under which the insurer pays. The contract you sign is what counts, not a summary on a quote sheet or a verbal description over the phone.
Insuring a home-based business is mostly a matching exercise. List the risks, read the exclusions, and pick the rider, endorsement or package that closes each gap. To keep reading, our guide to insurance shopping terms explains the vocabulary you will meet on quotes and declarations pages, and our article on whether homeowners insurance covers water damage shows how one common exclusion plays out in a claim.
Questions we hear
Does my homeowners policy cover my home business?
Usually only in a limited way. Business property kept at the home is often limited or excluded, and business liability is generally treated differently from personal liability, so read the exclusions in your policy.
What is a business owner’s policy?
It is a package that combines typical business coverage options into one bundle. The Small Business Administration notes that it can simplify the buying process and can save money, and that it suits most small business owners, home-based ones especially.
Do I need commercial auto insurance if I drive for my business?
For occasional business driving, a personal policy may be fine. If the vehicle is used mainly for the business, such as running deliveries or carrying tools and gear, the SBA advises a commercial policy, which may carry a higher premium.
Is workers’ compensation required for family members who work in my business?
Every state requires employers to carry workers’ compensation for their employees, and family members on the payroll count. How each state runs its system and what coverage costs differ, so check your state’s requirements.