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Business insurance is a common step in protecting a home-based business from legal action and other risks that can lead to losses. There are several ways to buy business insurance for home-based businesses, including straight from an insurer or a third party such as a broker or marketplace.
Here are five steps to help you understand the kinds of small-business insurance that home-based businesses should consider and how to find the right coverage for you.
1. Think about what risks your business faces
Before you get insurance for your home-based business, evaluate the risks you face to understand your coverage needs.
In addition to common risks — like an injury or loss of income — here are some examples of specific risks that home-based business owners face:
Damage or theft of inventory that you stored in the garage.
Lost or stolen laptops that result in data breaches or lost records.
Sickness among employees who work in your home.
What lawsuits, accidents or natural disasters might affect your business? Factors such as the size of your business, the nature of your work, where your house is located, whether you have employees and what kind of assets you have will affect how insurers evaluate your risks.
2. Figure out what policies and coverage amounts you need
Here are some of the types of business insurance for home-based businesses — and what those policies typically cover:
Type of insurance
What it covers
Claims against your business for third-party bodily injury, property damage or personal and advertising injury. You may be able to add an endorsement to your homeowners policy rather than have to buy a separate policy.
Claims of mistakes, negligence, inadequate work, inaccuracies, misrepresentation or similar allegations. A business may need E&O insurance if it provides services to customers for a fee.
Commercial property insurance
Damage to your home and the items in it as the result of natural disasters, fire, smoke or vandalism. An electrical fire, for example, destroying your home office would be covered under commercial property insurance.
Loss of income when your business is unable to operate due to a disaster. Business interruption insurance covers lost income if you close your home office due to the damage from an electrical fire.
Vehicles used for business. Your personal auto insurance may or may not have coverage for limited business use of your car. However, if you use your vehicle often for business, you’ll likely need a commercial policy.
Cyber liability insurance
Data breaches or software hacks. If hackers breach your computer system and steal your customers’ credit card information, for example, this insurance would cover the costs of notifying customers, setting up credit monitoring and investigating the attack.
Employee dishonesty coverage
Employee theft of money or property. Can be part of a larger commercial insurance policy.
Employees who are injured or get sick at work. Every state except Texas requires employers to get workers' comp insurance for employees.
You may also be able to bundle multiple types of insurance into a business owner's policy. BOPs usually consist of general liability, commercial property and business interruption insurance, but can be customized to meet your business’s needs.
3. Decide how you want to shop
To get the right business insurance for your home-based business, you have a few options.
Contact providers directly
You can buy home-based business insurance right from an insurer. If you have simple policy needs and an idea of what you’re looking for, this can be an easy solution. You’ll have to contact companies to get quotes.
Quickly get a quote and buy a policy.
Avoid dealing with a broker.
It may be time-consuming to contact multiple providers for quotes, especially if the providers don’t offer the same coverage.
You may not get the same level of attention as you would from a broker or independent agent.
Use an online marketplace
Business insurance marketplaces can streamline the shopping process. You provide information about your company and the coverage you’re seeking, then get quotes from different insurers and compare the quotes to find the best deal.
You can still handle the buying process on your own without having to contact multiple insurers.
Don't necessarily have to talk to a human if you don't want to.
Marketplaces partner with specific insurers, so you’ll get quotes only from those partner insurers.
Marketplaces don’t underwrite insurance policies, and you might not be able to manage claims or other issues through their systems. In addition, the communication among you, the marketplace and the provider isn't always seamless.
Use a broker
An insurance broker can offer personalized assistance. First, you’ll discuss your needs, and then the broker gets multiple quotes for you from different insurers.
A broker can help you determine what coverage you need.
Work directly with a human for a personalized process.
Saves you time by not having to contact providers yourself.
Because brokers typically work on commission, they might try to sell you things you don’t need.
Not obligated to find you the lowest rates for your policies.
Some brokers charge fees.
Using a broker will likely take longer compared to an online marketplace or directly contacting providers.
4. Compare the providers
Getting multiple quotes from different providers allows you to find the best coverage for your business. When comparing providers, consider things such as:
Policy coverage: Find out exactly what the policy does and does not cover.
Limits of liability: Understand how much of a loss the insurer will cover. Larger or riskier businesses may need a higher limit.
Price: Know how much the policy will cost and what the deductible is. Understand whether the coverage and liability limits are the same for the policies you’re comparing.
Reviews: The National Association of Insurance Commissioners website shows how many complaints people have filed against a company. Also, read ratings and reviews of each provider before purchasing a policy.
5. Buy your policies and schedule recurring reviews
After you buy your policies, make sure you know when your payments are due and how to manage your coverage — including filing a claim, adding endorsements or requesting a certificate of insurance.
Reevaluate the insurance coverage for your home-based business annually. Then, when your policy is up for renewal, consider your coverage, costs, customer service and any new risks you face — such as opening an off-site location or hiring employees — to ensure you still have the right coverage for your business’s needs.