In order for any business to be successful it must be run like a business, regardless of location. Anyone who runs a business out of a home, no matter how small, faces risks associated with it. You need insurance to protect yourself against those risks, whether your home business is incorporated or you run it as a sole proprietor. Some of the basics:

The standard homeowners insurance policy does not adequately cover most home businesses. If that is all you have, there is a lot that is not covered.

Most homeowners policies does not cover structures used for business purposes. So, if you are operating your business out of a renovated carriage house on the back of your property, you might be out of luck if it burns down.

Business personal property coverage in homeowners policies usually is limited to $2,500 for on-premise protection and $250 away from your premise. So, if you take your laptop to a client's office, make sure it does not get lost or damaged.

Most homeowners policies provide no coverage for business data coverage. That means if there is a fire and you lose all your books, files, and software, there's no insurance compensation.

You are not covered if someone visits you for business reasons and sustains an injury. Likewise, you are not covered if you cause the injury of someone else on someone else's property during the course of doing business.

If you write something, such as a press release or a business report, that causes economic damage to someone else, you are not covered.

To find out what insurance you need, take the time to sit down with your agent and talk. You will need to list your risk factors and prioritize them. There is loss-of-income insurance, business personal property insurance, personal and advertising injury insurance, on-premise liability, and off-premise liability to consider. If you give advice or write software, you should consider errors and omission (E&O) insurance, which will cover you if you are sued.

There are three basic types of insurance policies available to home-based business owners. Which policy you choose depends on a variety of factors, including how large your business is, the type of business you conduct, how much off-site work you do, the extent of your potential for liability — a fiction writer vs. a financial planner, for example — and how frequently you have business visitors to your home.

Option 1: Homeowners insurance endorsements

Still, some experts say an endorsement on a homeowners policy would be suitable for a small home business with minimal equipment and no business visitors or business deliveries to the home. For example, someone who telecommutes part-time using a home computer and fax might find an endorsement a reasonable option.

But the Independent Insurance Agents and Brokers of America (IIAA) comes down sternly against a homeowners endorsement for any home-business owner. It says the stakes are too high to depend on so little coverage.

Option 2: Home office policy/in-home business policy

An in-home business owner's policy is a step up from a homeowners endorsement. It is essentially homeowners insurance and a business policy rolled into a single policy designed specifically for home-based businesses, eliminating gaps and duplications in coverage. These policies offer business coverage such as business liability and replacement of lost income, and homeowners coverages such as fire, theft, and personal liability.

An in-home business owner's policy will also cover lost income and ongoing expenses, such as payroll, for up to one year if your business is unable to operate because of damage to your home. It provides limited coverage for loss of valuable papers and records, accounts receivable, off-site business property, and use of equipment. And it often has higher limits for off-premises business property and equipment-breakdown protection, as well as supplemental theft coverage.

A possible downside: Sometimes the companies that offer these policies will also require you to purchase other policies through them.

This type of policy might be appropriate for a mid-level, growing company with several business visitors a week and high-end computer equipment. It wouldn't be suitable for people who conduct a large amount of their business away from the home.

Option 3: Business owners policy

A business owners package policy (BOP) provides the most comprehensive coverage for your home business. Many insurance companies have created specialized BOPs that are just as comprehensive as commercial policies, but with prices suited to the home-office market.

Who might need a BOP? Businesses that stock inventory or manufacture products, those that conduct business out of a freestanding location, and those at high risk for professional liability.

• Structures used for business purposes, including any outbuildings, such as a renovated garage, carriage house, or barn.
• Business personal property such as office furniture and electronic equipment.
• Business data, including printed material and software.
• Loss of income, which would cover income interruption in case you had a fire and had to move the business.
• Loss due to crime, such as theft.
• Premises liability, which would cover you if someone has an accident on your property during the course of your doing business with them.
• Off-premises liability, which would cover you in case you were on someone elses property and caused an injury or damage to property during the course of doing business.
• Personal and advertising injury, which would cover you in case you wrote or produced work that caused someone harm. This would include libel or slander.

Keep up with your changing insurance needs

When deciding what type of policy to choose, consider the amount of financial risk you're willing to shoulder, as one major loss could mean the end of your business.

Regardless of the type of policy you ultimately settle on, keep in mind that your insurance needs will change as your business grows. That means you should periodically review your policy — at least once a year — to make sure you still have the appropriate coverages and limits. And don't forget to go over the exclusions with your agent.