Here's something that catches most people off guard: you finally take the leap and start that home-based consulting business, graphic design side hustle, or online shop you've been dreaming about. Business is good. You've got clients coming to your home office, equipment worth thousands of dollars, and maybe even hired a part-time assistant. Then disaster strikes—a client trips over your laptop cord and breaks their wrist, or your $5,000 camera setup gets stolen. You file a claim with your homeowners insurance, confident you're covered. That's when you get the news: your claim is denied because of business use exclusions.
If you're one of the 15 million Americans running a business from home, understanding these coverage gaps isn't just important—it's essential. Let's walk through exactly what your homeowners policy does and doesn't cover, and what you need to fill those dangerous gaps.
What Your Homeowners Policy Actually Covers (Hint: Not Much)
Standard homeowners insurance was designed for your personal belongings and personal liability—not business operations. Here's the reality of what you're actually covered for when it comes to business use:
Most policies include a tiny amount of business property coverage—typically just $2,500 for equipment at your home and a measly $250 to $500 if that property is off-premises. Got a laptop, camera, tools, or inventory worth more than that? You're underinsured. And that $2,500 limit applies across all your business property combined, not per item.
But here's where it gets really problematic: liability coverage. Your homeowners policy specifically excludes liability for business activities. If a client slips on your icy driveway while coming to pick up an order, or gets injured in your home office during a consultation, you're on your own. Those medical bills, legal fees, and potential lawsuits? Not covered. Even if your homeowners policy includes $300,000 in personal liability coverage, it won't pay a dime for business-related incidents.
And there's another gap most people don't think about: business data and records. While your policy might cover the physical computer or filing cabinet, the actual business data, customer records, and proprietary information stored on those devices? Not covered. If your hard drive crashes or gets destroyed in a fire, you can replace the hardware but you're out of luck on recovering lost business information.
Option 1: The Home Business Endorsement
For small, low-risk home businesses, a home business endorsement (sometimes called an in-home business policy rider) can be an affordable solution. This is an add-on to your existing homeowners policy that increases your business property coverage limits.
For as little as $25 to $50 per year, you can typically boost your business property coverage from $2,500 to $5,000 or even $10,000, depending on your insurer. Some endorsements also add coverage for things like accounts receivable, important papers and records, and off-premises business property up to $1,000.
But here's the catch: most endorsements have strict eligibility requirements. Your business typically can't have more than three employees, can't generate more than $250,000 in annual revenue, and must be operated entirely from your residence. And critically, many basic endorsements still don't solve the liability problem—they increase property coverage but don't extend liability coverage to business activities.
A home business endorsement works well if you're a solo freelancer working from a home office with minimal equipment and no client visits. Think writers, consultants, or remote employees with some extra equipment. But if your business involves any public interaction, employees, significant inventory, or manufacturing, you need something more robust.
Option 2: The Business Owners Policy (BOP)
For most home-based businesses that have grown beyond the hobby stage, a Business Owners Policy is the gold standard. A BOP bundles three essential coverages into one package: general liability insurance, commercial property insurance, and business income insurance.
General liability covers you if someone gets injured at your business or if you damage someone else's property through your business operations. Commercial property insurance covers your business equipment, inventory, and supplies—typically with much higher limits than a homeowners endorsement. And business income coverage is huge: if a fire or other disaster forces you to temporarily shut down, it covers your lost income and ongoing expenses while you get back on your feet.
In 2024, the median cost for a BOP was around $67 per month, with an average of $118 per month depending on your business type, revenue, and coverage limits. That's roughly $800 to $1,400 per year—significantly more than a simple endorsement, but you're getting comprehensive protection that actually covers your business operations.
A BOP makes sense if you have clients or customers visiting your home, if you have employees (though you'll need separate workers' compensation insurance), if your annual revenue exceeds $250,000, or if your business equipment and inventory are worth more than $10,000. It's also the right choice if your business could cause property damage or injury—think dog groomers, personal trainers, hairstylists, or anyone selling products.
Do You Even Need to Tell Your Insurance Company?
This is one of the most common questions home business owners ask, and the answer depends on the nature of your work. If you're a remote employee working from home for someone else's company, or if you do occasional freelance work on your laptop with no client interaction and minimal equipment, you probably don't need additional coverage or to notify your insurer.
But you absolutely should notify your homeowners insurance company and get additional coverage if any of these apply to you: clients or customers visit your home; you store inventory or products at home; you have employees working from your residence; you use your vehicle for business purposes; your business equipment is worth more than $2,500; you manufacture or alter products; or your business involves any physical risk (training, repairs, food preparation, childcare, etc.).
Here's why this matters: if you have a claim and your insurance company discovers you were running a business from home without disclosure, they could deny your claim entirely—not just the business-related portion, but potentially your entire homeowners coverage. It's not worth the risk.
How to Get the Right Coverage
Start by taking inventory of your business assets. List all your equipment, inventory, and supplies, and calculate their replacement value. Then think about your liability risk—do clients come to your home? Could your products or services cause injury or property damage? Consider your income too—if you couldn't operate for three months due to a disaster, would you be okay financially?
Call your current homeowners insurance agent first. They can tell you what your existing policy covers and whether a home business endorsement would work for your situation. If your business is too large or risky for an endorsement, ask if they offer BOPs or can refer you to a commercial insurance agent.
Shop around and get quotes from multiple insurers—BOP pricing can vary significantly based on your business type and the insurer's appetite for home-based businesses. Don't just look at price; compare what's actually covered. Some BOPs include cyber liability coverage or professional liability, while others require separate policies for these exposures.
Running a business from home is exciting and liberating—about 50% of all small businesses operate this way, and they're actually more successful than traditional businesses. But that success needs protection. Don't let an insurance gap derail everything you've built. Whether you need a simple endorsement or a full BOP, getting the right coverage now means you can focus on growing your business instead of worrying about what-ifs. Talk to your insurance agent today and make sure your home business is properly protected.
