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Home-based entrepreneurs often short on insurance

If you're running a business from home, and are like most other small businesses, you probably don't have enough insurance to cover all your needs.

Depending on the size of your business, you have some choices as to how you will make sure anything that happens to you, your business, or any employees.

Most typical homeowners policies only offer $2,500 of coverage for business equipment. Your computer alone — depending on how much and for what you use it — could easily exceed that amount.

There are three basic ways to cover your home-based business. Look into your options and decide which one is best for you.

First, you could add an endorsement of your homeowners policy, increasing the coverage for any business equipment — such as your computer — and for any other equipment you may use. Some insurance companies will permit increases of the basic $2,500 coverage up to as much as $10,000 for an additional charge. To cover liability problems, you can purchase a liability endorsement, to cover clients when they are in your home or to cover delivery people when they drop off packages. Liability riders are typically available only to home visitors with a limited number of visitors.

For a more comprehensive policy, you can purchase an In-Home Business program, which will include more comprehensive coverage for business equipment and a higher liability limit than you can get on a homeowners policy endorsement. In addition to protection for your property and liability coverage, these types of plans also include coverage for loss of important documents and records, accounts receivable and off-site business property. Some will even cover lost income — business interruption insurance — in the event your home is damaged by fire and you are unable to use it for business purposes. In addition, you may be able to obtain coverage for the cost of a temporary location from which to work. These types of policies normally limit the number of employees to three.

For those with larger home based businesses, you can go with a full Businessowners Policy, that covers all the same things as for any other business owner, just based in your home. If your business operates from more than one location, this is an excellent type of policy to consider. A BOP will cover business property, liability, loss of income, and extra expense on a much broader scale than an In-Home Business policy.

Since a BOP doesn't include workers compensation, health care or disability insurance, you will need to look into these coverage for your employees. You will also need separate coverages for any vehicles used in transporting goods, supplies or employees in the course of business.

BOP will also not cover professional liability which, depending on the type of business, could be an expensive proposition.

If you have employees, one type of business insurance you need to check is Employment Practices Liability Insurance. As more and more liability claims are filed across the country for a variety of reasons, you, as a business owner, need to be protected if one of your employees feels they have been slighted in some way.

EPLI covers the employer for lawsuits filed based on :

  • Sexual harassment
  • Discrimination
  • Wrongful termination
  • Breach of employment contract
  • Negligent evaluation
  • Failure to employ or promote
  • Wrongful discipline
  • Deprivation of career opportunity
  • Wrongful infliction of emotional distress
  • Mismanagement of employee benefit plans

These policies cover legal costs, whether you win or lose the case, and will cover the cost of the award, if any, up to the policy limit if you lose the case.

If you are opening a small business, look around for trade organization of other business people like yourself. Unless you have come up with a totally unique type of home business, there are probably organizations you can join with other business owners. The organization will often have information on the local insurance market, the best — and worst — places to purchase coverage, and other "tricks of the trade' for people in your line of work. Don't re-invent the wheel!

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