Home Based Business - How To Insure It

An estimated 12 million Americans operate a full-time or part-time business from their homes, and that number keeps growing. Although savvy and creative in their own specialties, these entrepreneurs can be unsure about how to protect their business against theft, fire and liability. Some mistakenly believe their homeowners policies cover all their home business insurance needs. As a result, many are uninsured. Here are some guidelines to help.

Property and Liability Insurance for Your Business

If you're a business owner, you need property insurance in case you're robbed or a fire breaks out and destroys equipment and inventory. You also need liability insurance in case someone gets hurt using your product or services or gets hurt while visiting you.

Most homeowners insurance polices only pay up to a maximum of $2,500 for business equipment in the home and $250 away from the premises. Homeowners policies usually don't cover business-related liability, such as if a customer or supplier is injured on your property. Your homeowners policy also doesn't insure your ability to collect your accounts receivable if your business records are damaged, and it won't replace lost income if you can't operate your business due to damage to your home.

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

1. Depending on the type of business you operate, you may be able to add an endorsement to your existing homeowners policy. Some insurance companies offer a home day care coverage endorsement for people who operate a home day care service for pay in their home. Some companies 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.

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

3. Or you can buy a package policy designed for smaller businesses, which combines the necessary property and liability insurance coverage 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 owners package policy. Some of these policies cover loss or destruction of business property on or off premises; 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 offering these polices often require that you purchase your homeowners and auto policies from them. With those 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 they're not approved yet for sale in all states. Talk with an insurance professional and get the best coverage available in your state.

Does Your Business Require Commercial Auto Insurance?

If you use an auto for your business activities - for example, transporting supplies or products, visiting customers, or ferrying employees or customers - you need to make certain your automobile insurance will protect you from accidents that occur while on business. In many cases, your personal automobile policy - which covers taking the kids to see their grandmother, picking up the groceries, or any one of thousands of personal tasks - can also cover business uses.

In some cases, however, depending on your type of business and the kind of vehicles you own, you may need to purchase a separate business auto insurance policy. An insurance professional will determine which approach would be best for you.

If You Have Employees, You Need Workers' Compensation Insurance

Once you hire an employee, you may need to purchase workers' compensation insurance to cover what it will cost if the employee is hurt on the job and needs medical treatment and income until he or she can return to work. If you've incorporated your business, workers' compensation insurance can also cover you if you are injured at work. Since each state has its own set of laws regulating when workers' compensation insurance needs to be purchased, check with your insurance agent or your state's insurance department to find out how this applies to your business.

Review Your Business Insurance Policy Annually

As your company thrives, your business insurance needs may change. It's important to review your business insurance policy every year to ensure your needs are still being met. If your business equipment, inventory or operation is more extensive than when you bought your policy, you may need to increase your policy limits.

Content provided by the Insurance Information Institute (I.I.I.)

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