Insuring a Home-Based Business

Many home-based travel agents mistakenly believe that their homeowner’s policies cover the property and operations of their business. Guess again — most homeowner’s policies cover only $1,000 to $2,500 for business equipment and offer no liability protection or loss-of-income coverage.

Here are some guidelines offered by the Insurance Information Network of California:

There are several options to consider when deciding what type of coverage to purchase for a home-based business. The least expensive option is to purchase an endorsement to your homeowner’s policy. For as low as $14 a year, business owners can increase their standard homeowner’s policy limits. This option may make sense for people who have no liability exposures, do not store business inventory, do not rely solely on their income for survival and have inexpensive business equipment.

Most insurance agents agree that few people fall into the category of being adequately covered with a homeowner’s policy endorsement; for those that require additional coverage, a home-office policy is the next step up. Home-office policies offer business coverage including business liability and replacement of lost income, as well as homeowner’s coverage such as fire, theft and personal liability. These policies were developed specifically for home-based businesses and provide adequate coverage while avoiding gaps or duplications in coverage.

A home-office policy also provides coverage such as lost income and reimbursement for ongoing expenses if the business is unable to operate because of damage to the home. Coverage for loss of valuable papers and records, accounts receivable and off-site business property are also included in most home office policies.

Business owners should discuss the type of insurance that makes sense for them with an insurance agent. Agents can help decide the amount of coverage needed, as well as explain any exclusions and deductibles. It is also recommended that business owners review their insurance needs yearly because as the business grows and changes so do the insurance needs.

Be sure to shop around. It'll take a few phone calls, but they could save you a good sum of money. Ask your friends, check the yellow pages or call your state insurance department. Also check consumer guides, insurance agents and companies. This will give you an idea of price ranges and tell you which companies or agents have the lowest prices. But don't consider price alone.

Business owners need both property insurance in case they're robbed or a fire breaks out in their company's "headquarters" and destroys equipment and inventory, as well as liability insurance in case someone gets hurt using their product or services or falls down the stairs when coming to see them

The first tip for business owners is: Don't assume that your homeowner’s policy covers your home business. It may, but probably only to a maximum of $2,500 for business equipment in the home and $250 away from the premises. It usually doesn't cover business-related liability, for example, if a customer or supplier is injured on your property, at all. Your homeowner’s policy also doesn't insure your inability to collect your accounts receivable if your business records are damaged, and it won't replace lost income if you cannot operate your business due to damage to your home.

There are three ways you can buy the home business insurance coverage you need:

• Depending on the type of business you operate, you may be able to add an endorsement to your existing homeowner’s policy. Some companies will offer property and liability insurance for "incidental" businesses operated from your home. However, each company may define incidental differently. For example, some companies consider an incidental business one that grosses less than $5,000 per year.

• You can buy several individual business insurance policies to provide the various coverages you need, such as business property, general liability and business income insurance.

• Or you can buy a business owner’s package policy designed for smaller businesses, which combines the necessary property and liability insurance coverages you need in a single policy.

Because home businesses keep popping up all over the country, some insurance companies have begun to offer what amounts to a mini-business owner’s package policy specifically for home businesses. Some of these policies cover the loss or destruction of business property on or off premises; the loss of valuable papers and important business information; personal injury and advertising liability; accounts receivable up to $10,000; money lost on premises up to $5,000 and off premises up to $2,000.

The companies that offer these policies often require that you purchase your homeowners and auto policies from them. With those policies in place, your home business policy extends the amount of personal property and liability coverage you have on your home to your business. And if a fire or storm makes running your business impossible, it'll cover expenses and lost income for up to a year.

These package policies cut the possibility of gaps and duplications in coverage. But, unfortunately, they're not approved yet for sale in all the states. The important point is to talk with an insurance professional and get the most appropriate coverage for your home business that is available in your state.

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