What Counts as a Home-Based Business (and When Your Home Policy Isn’t Enough)

Whether you sell products online, provide consulting services, or operate a small studio from your home, you may have exposures that fall outside the scope of a standard homeowners’ policy. Understanding where your personal coverage ends and business coverage begins can help prevent expensive surprises.

What Counts as a Home-Based Business?

A home-based business is any income-generating activity conducted from your residence. It doesn’t matter if clients visit your home or if you work quietly from a spare bedroom; you’re earning money, insurers typically consider it business activity. Even storing inventory or specialized equipment at home can change how your policy responds to a claim. Common examples of a home-based business include:

• Bookkeepers, accountants, or tax preparers working from home
• Freelancers and consultants
• Handmade product or craft businesses (Etsy shops, custom goods, etc.)
• Home-based childcare or daycare providers
• Online sellers and e-commerce businesses
• Personal trainers or wellness coaches offering virtual sessions
• Photographers or creatives with home studios
• Real estate or insurance professionals working remotely
• Tutors or instructors
• Virtual assistants or remote administrative support providers

Where Homeowners Doesn’t Provide Protection

Homeowners insurance is designed to protect personal property and personal liability — not commercial operations. While it may offer limited coverage for small amounts of business property, those limits are often low and come with restrictions. Here’s where gaps commonly appear:

• Business Equipment and Inventory: Your policy may cap coverage for business-related property at a small dollar amount. Expensive computers, tools, or stored inventory could be underinsured or excluded.
• Liability from Business Activities: If a client slips on your walkway during a business visit, your personal liability coverage may not apply because the injury occurred during business activity.
• Professional Errors or Advice: If you provide professional services and a client claims financial loss due to your work, homeowners’ insurance will not cover that type of claim.
• Loss of Business Income: If a fire or storm damages your home office, your homeowners policy may help with living expenses, but it typically won’t replace lost business revenue.

When Business Coverage Becomes Necessary

If your home-based business generates steady income, involves client interaction, or requires valuable equipment, additional coverage is usually recommended. Options may include:

• Business Property Coverage: Protects equipment, inventory, and supplies used for your business.
• General Liability Insurance: Covers bodily injury or property damage claims related to your business operations.
• Professional Liability (Errors and Omissions): Protects service-based businesses against claims of negligence or errors.
• Business Owner’s Policy (BOP): Combines property and liability coverage into one policy, often ideal for small businesses operating from home.

The right solution depends on the size and nature of your operation. A small side hobby with minimal income may need only a policy endorsement, while a growing enterprise may require a separate commercial policy.

A Simple Example

Imagine a graphic designer working from home with $10,000 worth of specialized equipment. If a burst pipe damages the office, many homeowner’s policies provide only limited coverage for business property, often far less than the actual value of the equipment. That difference creates a coverage gap, meaning the designer could end up paying thousands out of pocket. With the right business coverage in place, the equipment could be insured for its full value, and the designer may also have protection for lost income while the workspace is being restored.

Don’t Assume…Review Your Coverage

Many home-based business owners unintentionally operate with coverage gaps simply because they never reviewed their policies after starting their business. Insurance companies view business activity differently from personal use, even if it all happens under one roof. The safest approach is to review your current homeowners policy and discuss your business activities with an experienced insurance professional.

At Murphy Insurance, we help homeowners determine whether their current coverage is enough and recommend appropriate business insurance solutions when needed. If you operate a business from home, contact us to take a few minutes to review your coverage and make sure both your home and your livelihood are protected.