According to the National Bureau of Labor Statistics, 3 out of 10 homeowners operate a business out of their homes. More than 66% of the estimated 20.7 million people who work at home are self employed and run a home-based business. It's estimated that more than half of home-based business owners are underinsured and the Independent Insurance Agents of America (IIAA) say nearly 40% of those they surveyed are uninsured primarily because they thought their homeowners policy covered their business.
However, a typical homeowners policy usually only covers damages up to $2,500 on the premises of the home-based business, and $250.00 off the premises. In addition your homeowners policy won't typically cover liability arising from your home business, for example if a delivery person slips and falls when delivering a package.
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When shopping for business insurance, you have three main choices:
Depending on what type of business you operate, you can usually get an endorsement on your homeowners policy that has higher limits or covers specific perils or risk. For as little as $14 a year, you can double your standard policy limits for business equipment from $2,500 to $5,000.
Some companies have started offering endorsements that include property and limited business liability coverage. Endorsements are typically only available for businesses that generate $5,000 or less in annual receipts. They are available in most states.
In-Home Business Policy
The insurance industry has responded to the growing number of home-based businesses by creating "in-home business" insurance policies. For about $200 a year you can insure your business property for $10,000. General liability coverage is included in the policy. A business owner can purchase a $300,000 to $1 million in liability coverage.
If your business is shut down because of damage to your house, your in-home policy will cover lost income and ongoing expenses such as payroll for up to one year. The policy also provides limited coverage for loss of valuable documents, accounts receivable, off-site business property and use of equipment.
Business Owners Package Policy (BOP)
You may want to consider a package business owners insurance policy—or what's known in the industry as a BOP. This package deal is designed to offer a simple, off-the-shelf product to small and medium sized business owners. A BOP is an excellent solution, in particular, for home-based businesses that operate in more than one location or manufacture products outside the workplace.
The form is approved in 39 states including the District of Columbia and can cover businesses as large as 25,000 square feet and with gross sales of up to $3 million. It offers some special features not offered in general business policies at a better value for smaller business owners.
For example if you run an alterations business out of your home and customer's clothes are damaged in a fire there—the business owners policies covers that. It may not apply to you if you need very specific coverage, for example an environmental business or some small restaurants or wholesalers. They may have specialized and expanded insurance needs that wouldn't be covered by a pre-packaged policy.
The BOP was expanded recently to provide some new optional coverages and revised the long list of small businesses it can serve. Included now are contractors, fast food and limited cooking restaurants up to 75-hundred square feet, and certain convenience stores and dry cleaners.
Like the in-home policy it covers business property and equipment, loss of income and extra expenses and liability. However, these coverages in the BOP are on a much broader scale.