Here's the uncomfortable truth about running a business from home: your homeowners insurance probably isn't protecting you the way you think it is. About half of all small businesses in America are home-based—that's roughly 15 million operations—and most owners assume their regular home insurance has them covered. It doesn't.
Whether you're running a consulting practice from your spare bedroom, teaching piano lessons in your living room, or selling handmade goods through an online store, there's a good chance you have coverage gaps that could cost you thousands if something goes wrong. The good news? Once you understand what's missing, filling those gaps is usually straightforward and affordable.
The Coverage Gaps in Your Homeowners Policy
Standard homeowners policies are designed for residential use, not commercial activity. That creates three major problems if you're running a business from home.
First, there's a strict limit on business property coverage—typically just $2,500. If you have a home office with a couple of laptops, a printer, and some basic supplies, you might squeak by. But if you're storing inventory, operating specialized equipment, or housing thousands of dollars worth of business assets, you're drastically underinsured. And that $2,500 limit? It only applies to property at your home. If you take business equipment off-site, coverage drops to just $250 to $500.
Second, and more concerning, is the liability exclusion. Let's say you offer fitness coaching and a client injures themselves while following your workout program. Or you run a small daycare and a child gets hurt on your property. Or a customer slips on your icy driveway while picking up a product. Your homeowners policy's liability protection doesn't extend to business-related activities. You'd be personally on the hook for medical bills, legal fees, and any settlement or judgment.
Third, there are entire categories of risk that homeowners insurance doesn't touch at all: professional liability claims, cyber threats and data breaches, business interruption losses, and commercial auto coverage if you use your vehicle for deliveries or client visits. These aren't just coverage limits you can increase—they're complete exclusions that require separate business insurance.
Your Options: Endorsements vs. Business Owner's Policies
Once you understand the gaps, the question becomes: how do you fill them? You essentially have three options, and which one makes sense depends on the size and nature of your business.
For very small operations—think writers, graphic designers, or other solo professionals who rarely have clients visit their home—a homeowners policy endorsement might be enough. These endorsements can increase your business property coverage from $2,500 to anywhere from $5,000 to $10,000, often for as little as $25 to $50 annually. Some insurers also offer limited liability endorsements for low-risk businesses like music teachers, though eligibility varies significantly.
The catch? These endorsements still have major limitations. The increased property coverage doesn't fix the liability exclusion problem, and many of the specialized coverages that businesses need—like business income protection or coverage for valuable papers and records—remain unavailable.
For businesses that have regular client traffic, employees, significant inventory, or annual revenue approaching or exceeding $250,000, a Business Owner's Policy (BOP) is the better choice. A BOP bundles property and liability coverage into one package and automatically includes protections that are optional or unavailable under homeowners endorsements. In 2024, the median cost for a BOP was $67 per month—about $800 annually—though prices vary based on your specific business activities and coverage needs.
There's also a middle option: an in-home business policy. These are more comprehensive than endorsements but less extensive (and less expensive) than full BOPs. They're typically available for businesses with up to three employees and less than $250,000 in annual revenue. Coverage varies significantly by insurer, so if you're considering this route, compare offerings carefully.
Common Exclusions That Catch Home Business Owners Off Guard
Understanding what's excluded from homeowners policies—and why—helps you make smarter coverage decisions. These exclusions exist because business activities introduce different and often greater risks than typical residential use. Without these limitations, insurers would have to price all homeowners policies to account for every possible business activity, making coverage unaffordable for everyone.
Professional liability is a big one. If you provide advice, consulting, or professional services, and a client claims your guidance caused them financial harm, that's not covered under a homeowners policy. A marketing consultant whose strategy fails to deliver results, a financial planner whose recommendations lead to losses, or a web designer whose work contains errors—all face professional liability exposure that requires separate coverage.
Business interruption coverage is another gap that can hurt. If a fire or storm damages your home and forces you to pause operations, your homeowners policy will cover the physical repairs to your house, but it won't replace the business income you lose during that downtime. For someone running a home-based business that generates significant revenue, weeks or months without income while rebuilding could be financially devastating.
Auto coverage is trickier than most people realize. Using your personal vehicle occasionally for business errands might not void your auto policy, but regular business use—like making deliveries, visiting client sites, or transporting goods—typically requires either a commercial auto policy or a business use endorsement on your personal policy. Get into an accident while making a business-related trip without proper coverage, and your claim could be denied.
Finally, cyber liability and data breach coverage are increasingly important but completely absent from homeowners policies. If your business handles customer information—credit card numbers, Social Security numbers, health records, or even just email addresses—and that data is compromised, you could face notification requirements, credit monitoring costs, legal fees, and regulatory fines. None of that is covered by your homeowners insurance.
How to Get the Right Coverage for Your Home Business
The first step is honest assessment. What business activities are you conducting? How much business property do you have? Do clients or customers visit your home? How many employees do you have? What's your annual revenue? The answers to these questions will point you toward endorsements, an in-home business policy, or a full BOP.
Next, talk to your homeowners insurance provider about your business activities. Be completely transparent—failure to disclose business use could result in denied claims down the road. Ask specifically about business property limits, liability exclusions, and whether endorsements are available for your type of business. Get their recommendations in writing.
If your homeowners insurer can't provide adequate coverage, shop around for business insurance quotes. Many insurers specialize in small business and home-based business coverage, and prices can vary significantly. Don't assume a BOP is too expensive—given that 70% of home-based businesses succeed compared to just 30% of traditional businesses, protecting your operation is a smart investment.
Finally, review your coverage annually or whenever your business changes significantly. Adding employees, increasing inventory, expanding services, or hitting new revenue milestones can all change your insurance needs. What made sense when you started your side hustle might leave you dangerously underinsured once your business grows.
Running a business from home offers incredible flexibility and low overhead—44% of home-based businesses launch with less than $5,000. But that lean startup approach shouldn't extend to insurance. The right coverage protects not just your business assets, but your personal finances and your home itself. Get it wrong, and a single incident could wipe out everything you've built.
