Insuring Your Home-Based Business

Most home-based businesses are not aware that their existing insurance policies do not cover most business-related risks. A typical homeowner’s insurance policy provides only $2,500 of on-premise protection for business equipment and $250 of off-premise protection. That is not a lot of coverage when you consider the cost of today’s home-office technology such as computers, copiers and fax machines. Some policies do not cover any business furnishings or equipment, and others even prohibit home-based business activity.

Find out early what is covered under your existing policy and what is not so that you can update, expand or replace the policy if necessary. To protect the average home-based business from hazards, there are three basic options:

Endorsements/Riders

Depending on the type of business you operate and your annual sales revenues, consider adding an endorsement or “policy rider” to your existing policy to protect your business property. It may also be possible to obtain a policy rider for general business liability, which provides protection in case someone is injured while on your property for business purposes.

In-Home Business Policy

In response to a growing number of home-based businesses, the insurance industry has created a policy that combines the features of a homeowner’s policy with a business owner’s policy (described below). These policies cover both property and general liability. In-home business policies also cover lost income and ongoing expenses in the event that your business is unable to operate because of damage to your home. Additionally, this type of policy provides limited coverage for the loss of valuable papers and records, accounts receivable, off-site business property and use of equipment.

Business Owner’s Policy

A business owner’s policy covers equipment, loss of income, ongoing expenses and liability. What makes this type of policy different is that is provides higher limits of coverage and is more comprehensive than an in-home business policy.

When evaluating your existing insurance policies, it is also a good idea to take a look at your automobile insurance. If you plan to use your vehicle for business activities such as transporting supplies and products or visiting customers, make sure that your automobile insurance will protect you from accidents that occur while on business.

Some businesses need more than the basic insurance described above. Work with your insurance agent to understand and prioritize your risks and review available insurance products. Additional types of protection to consider include product liability, professional liability (sometimes called errors-and-omissions or malpractice insurance), business interruption, and intellectual property protection. In all cases, make sure you read and understand the fine print in all of your policies and reevaluate your insurance needs on a regular basis.

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