Protecting Your Home-Based Business

Part of a solid risk management plan is insuring your business properly. This is especially important if you conduct your business from your home.

Protect Your Livelihood and Your Home

When you operate a business in your home, it does not mean your exposures are necessarily covered. Having the proper insurance coverage can be the difference between business success and failure. And although a homeowners insurance policy is covers personal exposures, it does not cover business exposures.

It is important to assess your property value and your business exposures. These six questions can help you better do this:

1. What is your equipment worth? Perform an inventory, listing everything you use to operate your business.
2. Does the service or product you provide create extra liability? For example, what if you made an error or omission? Do you serve alcohol? What if your product is defective? Do you take possession of your customers’ property?
3. Do you stock inventory? If so, make a list of the materials and products that you sell and, if you do any of the manufacturing, detail the materials used to make them.
4. What about vehicles? Any vehicle used for business purposes must be insured, even if it’s personally owned.
5. Do you have employees? If you do, you need the appropriate workers’ compensation coverage as required by the state.
6. Do you, or your employees, perform work in your customers’ homes? If so, a third-party fidelity bond will pay for losses due to fraudulent acts, such as theft.

Coverage Option 1, 2 or 3?

There are three basic coverage options to choose from, depending on your level of risk:

1. Homeowners Policy Endorsement: This offers the least amount of coverage and isn’t ideal for most home-based businesses. It may provide enough coverage for a freelance writer or another profession with no business foot traffic, but it is not enough for someone who employs others, has clients visiting his or her home, or has valuable business equipment and/or inventory.
2. In-home Business Policy: More comprehensive than a homeowners policy, in-home business coverage is a standalone policy that provides higher amounts of coverage for business equipment and liability.
3. Business Owners Policy (BOP): A BOP bundles property and liability insurance into one policy. Created specifically for small- to mid-size businesses, a BOP covers your business property and equipment, loss of income, extra expenses and liability. It is the most comprehensive property and liability option, however, it does not include workers’ compensation, health or disability insurance, which are available as separate policies.

Common Business Coverages

Common coverages for home-based businesses include personal business property, professional liability, business income, personal and advertising injury, loss of business data, crime and theft, workers’ compensation and auto coverage. Depending on your type of home-based business, not all coverages may apply and other coverage options may be available.

What’s Your Risk?

Although most homeowners insurance policies do cover a limited amount of business equipment, it is likely that what you own is worth more than your policy’s limits. In addition, your homeowners’ liability insurance probably won’t cover any employee or client injuries that may occur on the premises.

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