What is the difference between personal and business insurance?

Whether you just started your business or you’ve been running one for years, you may wonder whether you really need to pay for business insurance. That’s especially true if you work from home, don’t have employees, or don’t sell physical products. 

Don’t assume your personal insurance is enough. Personal insurance and business insurance policies protect against different types of risks and losses. This guide covers how they differ, what each type of insurance may cost relative to the other, and what a home-based business needs. 

For the full picture on business insurance coverage, visit Nav’s business insurance marketplace. 

What’s the difference between personal and business insurance?

Personal insurance protects individuals and their households — think home, car, health, and personal risks and liability. Business insurance, on the other hand, protects a businesses’ assets, income, and legal liability. Each type of insurance is written on different policy forms with their own exclusions, so neither can replace each other. 

Personal vs. business insurance comes down to what’s being protected. Here’s how common personal and commercial policies often compare with each other. 

Coverage varies. Read your policies for coverage and exclusions. 

Is business insurance cheaper than personal insurance?

When coverage is the same, business insurance isn’t usually cheaper than personal insurance. Business insurance often carries higher liability limits which can mean higher costs. 

Take auto insurance as an example. The National Association of Insurance Commissioners (NAIC) puts the 2024 average premium paid for personal auto at $1,431 a year per insured vehicle, or about $119 a month. With all three coverages (liability, comprehensive, and collision), the average premium was $1,612 per year, or $134 per month. 

Commercial auto averages about $245 a month, according to broker Insureon. It says that 40% of its customers pay under $200 a month, 29% pay $200 to $400 per month, and 31% pay over $400 a month.

Even if a personal policy is cheaper, simply substituting it for a business one isn’t a workaround. Personal policies often exclude business activity, so a claim that arises in the course of business can be denied.

To see what a full set of small business insurance may cost, see Nav’s business insurance cost guide. 

Can you use a personal insurance policy for business claims?

Typically, you can’t use a personal insurance policy for business claims. Personal policies like homeowners and auto insurance are designed for personal risks, not business activities. Here are four reasons it probably won’t work:

1. Coverage exclusions

Homeowners policies generally exclude liability for most business activities. They likely exclude claims from people hurt on your property in the course of your business, and they don’t protect your income while the business can’t operate after a property loss. If you file a claim for something that happened while you were working, it is likely to be denied. 

2. Risk assessment

Insurers treat business use as an added risk. For example, they may charge additional premiums for business driving or decline to insure the vehicle.

3. Policy limits

Even when a personal policy gives some business coverage, the limits are likely small. A typical homeowners policy may cap business property at $2,500 to $3,000 at home, and as little as $250 to $1,500 away from home, depending on the policy.

4. Potential for nonrenewal or cancellation

If your insurer finds out you're using a personal policy for business, it may deny the claim and could also cancel or refuse to renew the policy.

Personal auto vs. commercial auto insurance

Commercial vs personal auto insurance comes down to how you use a vehicle and who owns it. Commercial auto coverage may be a better fit when:

• The business owns or leases the vehicle
• You deliver products or do light hauling
• You transport children or other passengers as part of the business
• Employees drive for you, including in their own cars on company business
• You use the vehicle mostly for business

So what does a personal auto policy leave out? It may exclude business-related liability, and some uses cause more trouble than others. If you’re a consultant who occasionally drives to an office supply store, commutes to a coworking space, or even drops off paperwork at a client’s office from time to time, you may be fine. But if you carry people or property for a fee, an insurer may exclude coverage for those activities. The safest move is to ask your insurer how it treats your specific use.

If you or your employees use personal or rented vehicles for work, hired and non-owned auto coverage may be worth asking about. It covers liability for vehicles your business uses but doesn't own, and you can buy it on its own or is an add-on to a general liability or commercial auto policy. 

Does homeowners insurance cover a home-based business?

A standard homeowners policy caps business property at about $2,500 to $3,000 at home, and as little as $250 to $1500 away from home, depending on the policy. It also generally excludes business liability. Renters policies work the same way.

If you're shopping for business insurance for a home-based business, you have four basic options. Here they are from smallest to largest:

1. A home business endorsement. This coverage is an add-on to your homeowners policy. For as little as $25, you may be able to raise your business property limit from $2,500 to $5,000, though cost and coverage depends on your insurer. Liability endorsements are typically limited to businesses with few visitors, such as writers or consultants who work from home. An endorsement may be enough for a very small business with minimal equipment and no business visitors or deliveries.

2. An in-home business policy. This covers business equipment and liability more fully than an endorsement. They may reimburse you for lost papers and records, and off-site business property, and some will replace income you lose if your home is too damaged to use. 

3. A business owner’s policy (BOP). A BOP bundles property, business interruption, and liability coverage into a single policy. Maine’s insurance regulator recommends one if you have employees, contractors, or customers who visit often. A BOP typically doesn't include commercial auto, workers compensation, health, disability, or professional liability coverage.

4. General or professional liability. General liability often covers bodily injury, damage to others’ property, personal injury, and advertising injury. If you're a professional working from home, you probably also need professional liability insurance, which standard homeowners and renters policies don't include.

How do you know when to move up the list? Your best bet is to ask your insurance professional for help. You can also ask yourself a few questions. Do clients or customers come to your home? Do deliveries come to your door? Where do you store inventory? Any of those can push you from an endorsement toward a BOP. Hiring employees can do the same.

If you’re self-employed, Nav’s top 10 insurance tips for freelancers and the self-employed can help you understand what you may need. 

Do you need both personal and business insurance?

Most business owners need both. Personal and business policies are built for different risks, and a personal policy generally won't cover a business loss. These moments often make a business policy a must:

• A loan that asks for proof of coverage. For loans backed by the Small Business Administration (SBA), for example, 7(a) loans and 504 projects over $50,000 generally require hazard insurance on collateral you pledge for the loan. 
• A client requires coverage. A customer or client may require proof of coverage. 
• Your first employee. Most states require workers' compensation, even if you have only one employee.
• You purchase a commercial vehicle or regularly use your personal vehicle in your business. Again, how you use a personal vehicle in your business may affect the coverage you need. A vehicle owned by a business isn't typically covered by a personal auto policy, and homeowners policies often cap business property at about $2,500 to $3,000.

Use Nav’s small business insurance checklist to learn more about the insurance coverage you may need. 

The bottom line

You may need both personal and business insurance if you run a business. While it’s tempting to wait until something happens, you can’t get insurance retroactively for a loss you’ve already suffered. 

Think of insurance as an essential cost of doing business, and one step in creating a viable business for the long run. If something does go wrong, you’ll be glad you have it.

And just as some landlords or clients may check your business credit, some may want to see you have business insurance. Nav is not a lender or a credit bureau. Credit information is provided by third-party sources.

When you're ready to compare options, start at Nav’s business insurance marketplace.

Frequently asked questions