Do Home-Based Businesses Need Extra Insurance?

What’s the difference between working from home and running a home-based business? When you work from home, you’re doing work for an employer, but without the commute to an office (in this case, your employer likely owns all of the items you use to do your job day to day, such as your laptop or company cellphone). In contrast, if you have a home-based business, you own your own company, and your primary office is located in your home (even if your business regularly requires you to be on-site at various locations, such as a client’s home or office). Or, you may have a side hustle, working to make a few extra bucks on top of your day job.

The need for separate, specific home-based business insurance that protects you and your company can range from “a good idea” to “absolutely necessary,” depending on the type of home-based business you operate.

Key takeaways

• It’s important to know the difference between working from home and having a home-based business—especially regarding home-based business insurance.

• The maximum annual income earned to be eligible for home-based business insurance is $150,000.

• You may have a main employer, but also operate an unrelated side business, which may need to be insured separately.

• Insurance for home-based businesses provides coverage that extends beyond typical home insurance or renter’s insurance policies.

• Insurance for home-based businesses protects entrepreneurs from loss or damage to their business assets and certain liabilities.

• It is important to notify your insurance company if you are operating a business from your insured home.

What is a home-based business, and how does it differ from working from home?

If you’re running a business or entrepreneurial venture out of your home, this qualifies as a home-based business—whether your “office” is a separate room or simply your dining room table. This means that businesses that range from companies selling handmade or second-hand items to small accounting or graphic design firms are all considered home-based businesses.

Working from home (or working remotely) is different in that you have an employer. You’re not working for yourself, but for a company that’s based outside of your home and that allows you to work remotely, away from its offices. You may be working in another office or while travelling (it doesn’t necessarily take place at home).

Does my home insurance cover my home-based business?

Your home insurance policy will typically provide you with coverage for the home itself and for your personal property. And it will offer liability coverage for accidents that might occur on your property. Like all insurance policies, however, home insurance has limitations and exclusions which might not extend to your home-based business activities and items, such as the equipment you use or the inventory you keep on the premises. 

It’s a smart idea to double-check your current home insurance policy and then evaluate it to see if you need additional insurance products, in order to avoid leaving your business uninsured or underinsured.

Some options to consider are:

Add-on endorsements: If you already have homeowner’s, condo, or rental insurance, you can choose to add a home-based business endorsement to your current policy. These endorsements may provide some coverage for small business owners for their equipment, inventory, and liability related to entrepreneurial activities. However, it’s important to review the coverage and determine if these add-on endorsements are a good fit for you. Contact an insurance advisor if you have any questions about your policy.

Professional liability insurance: Does your home-based business offer professional services, consultations, or advice? If so, professional liability insurance (also called “errors and omissions insurance”) can protect you from claims of errors or negligence made by your clients. If a client were to file a lawsuit against you, this type of insurance might cover (in whole or in part) your legal fees.

Cyber endorsement: In today’s digital age, your home-based business likely relies on technology such as computers, cloud services, smartphones, and smart home devices. While these tools offer convenience, they also store personal information online, creating potential access points for cyberattacks that can cause financial, personal, or emotional harm. Eligibility for personal cyber coverage for home-based businesses requires specific conditions to be met. Speak with an insurance advisor to learn more.

Home-based business extension: Available through RBC Insurance, this endorsement is designed to fit the needs of entrepreneurs who operate small businesses from their primary residence. Adding this product to your home, condo, or tenant policy will cover you for property damage and personal liability, and your business contents. Many types of entrepreneurs and home-based businesses are eligible for this endorsement. Coverage is subject to the terms and conditions within specified limits outlined in the policy. An insurance advisor can help you determine if this is the right addition to your policy.

Business Insurance: Home-based business owners who feel the above-mentioned endorsements and insurances still don’t provide adequate coverage can consider business insurance. This is usually a customized business insurance package that may include employer’s liability insurance, business tools and equipment insurance, commercial auto insurance, and more. Consider discussing your unique situation with an insurance advisor. They’ll help you find the best solution.

Why protect your home-based business with a home business extension?

Discovering that your basic home insurance policy doesn’t cover you, your home, or your business when you really need it is a terrible feeling. Many typical home insurance policies do not cover damage due to business activities deemed “risky” (for example, a home business that prints T-shirts using a heat press). Planning ahead by opting for an add-on home-based business extension may protect you in instances of:

• Third-party bodily injury (to clients, delivery people, or employees), also known as “personal liability”

• Property damage

• Inventory loss

• Theft or damage to office/business equipment (such as computers or office furniture)

• Loss of income due to a pause in operations stemming from an insurable event, such as a fire

What businesses qualify for home-based business insurance coverage?

Qualifying for home-based business insurance is simple and straightforward. Your insurance advisor will ask you: 

• About your business’s annual gross sales

• If the home occupied by the insured is a principal residence

• If the business operates solely out of the home and at no other location

• If employees and/or customers frequently visit the home

• About the nature of the activities being performed in the home while running your home-based business

This list isn’t inclusive, but it does include some of the basic requirements for home-based business insurance coverage. For example, some insurance providers won’t insure home-based businesses dealing in products or services sold outside of Canada, and some providers can restrict in-home daycare or babysitting services. Alternatively, your home-based business may be too large (based on income, number of employees, or cross-border reach) to qualify for this type of insurance. Your insurance advisor can assist you in reviewing all the requirements and making the best choice.

FAQs: Insurance for home businesses

Does home insurance cover my home-based business?

Home and renter’s insurance policies don’t typically cover a home-based business. Entrepreneurs who work out of their home often need to obtain extra coverage, so their business, inventory, and office equipment and/or tools are covered against loss or damage.

Do I need extra insurance to run a business from my home?

Yes. A home-based business policy or an add-on endorsement is usually required to make sure  you are adequately covered in case of theft, damage, or liability claims, and it may be a requirement of the insurance company to insure your property.

Is my work laptop covered by home insurance?

If you work from home and use your employer’s laptop, it will typically be covered by your company’s commercial policy. If, however, you run a home-based business, your computer may be insured under your standard home insurance policy.

Do I need additional insurance when I work from home?

For the work-from-home (WFH) set, additional insurance (beyond your own home or renter’s insurance) isn’t usually required. Talk to your employer about its WFH policy and its own commercial insurance policy’s coverage for remote workers to be sure you’re covered working from home. Talk to your own insurance advisor if you still have questions.

Call an RBC Insurance Advisor to check if you qualify for home-based business insurance and to find the best solution for you.

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