The key to getting the right type and amount of insurance coverage is education. Yes, there are websites that can help assist you in determining how much and what type of coverage you need, but the only way to be sure that you are adequately protected is to learn everything you can and then make your own informed decisions. Even if you seek help from a professional, and in the case of home business protection you certainly will, you should at least understand the terminology as well as the basics so that you know that you are getting the right product at the right price.
If you're a professional working out of your home, you probably need at least professional liability insurance. Some types of in-home businesses, such as those that make or sell food products or sell home-made personal care products, may have to buy special policies.
To insure your business, you have four basic choices, depending on the nature of your business and the insurance company you buy it from. They are:
- Homeowners Policy Endorsement.
You may be able to add a simple endorsement to your existing homeowners policy to double your standard coverage for business equipment such as computers. For as little as $25 you can raise the policy limits from $2,500 to $5,000. Some insurance companies will allow you to increase your coverage up to $10,000 in increments of $2,500.
You can also buy a homeowners liability endorsement. You need liability coverage in case clients or delivery people get hurt on your premises. They may trip and fall down your front steps, for example, and sue you for failure to keep the steps in a safe condition.
The homeowners liability endorsement is typically available only to businesses that have few business-related visitors, such as writers. But some insurers will provide this kind of endorsement to piano teachers, for example, depending on the number of students. These endorsements are available in most states.
- In-Home Business Policy/Program.
An in-home business policy provides more comprehensive coverage for business equipment and liability than a homeowners policy endorsement. These policies, which may also be called in-home business endorsements, vary significantly depending on the insurer.
In addition to protection for your business property, most policies reimburse you for the loss of important papers and records, accounts receivable and off-site business property. Some will pay for the income you lose (business interruption) in the event your home is so badly damaged by a fire or other disaster that it can't be used for a while. They'll also pay for the extra expense of operating out of a temporary location.
Some in-home business policies allow a certain number of full-time employees, generally up to three.
In-home business policies generally include broader liability insurance for higher amounts of coverage. They may offer protection against lawsuits for injuries caused by the products or services you offer, for example.
In-home business policies are available from homeowners insurance companies and specialty insurers that sell stand-alone in-home business policies. This means that you don't have to purchase your homeowners insurance from them.
- Businessowners Policy (BOP).
Created specifically for small-to-mid-size businesses, this policy is an excellent solution if your home-based business operates in more than one location. A BOP, like the in-home business policy, covers business property and equipment, loss of income, extra expense and liability. However, these coverages are on a much broader scale than the in-home business policy.
A BOP doesn't include workers compensation, health or disability insurance. If you have employees, you'll need separate policies for these coverages.
- Professional Liability Insurance.
Depending on the nature of your home business, you may need professional liability insurance. Selling home-made personal products, having a business where lots of clients visit your home, or operating a business involving children may require that you purchase special policies. For example, daycare activities, which are specifically excluded in homeowners policies, require specialized liability protection for obvious events like injury as well as unusual possibilites like sexual abuse claims.
Professionals are expected to have extensive technical knowledge or training in their particular area of expertise. They are also expected to perform the services for which they were hired, according to the standards of conduct in their profession. If they fail to use the degree of skill expected of them, they can be held responsible in a court of law for any harm they cause to another person or business. When liability is limited to acts of negligence, professional liability insurance may be called "errors and omissions" liability.
Professional liability insurance is a specialty coverage that is typically not provided under homeowners endorsements and in-home business policies. Some business owners policies (BOPs) do include this type of coverage, but not generally.
Special Note: If you are using your car for business activities -- transporting supplies or products or visiting customers -- you need to make certain that your automobile insurance will protect you from accidents that may occur while you're on business. Contact your home or automobile insurer.
Step 3 - Determine Your Insurance Needs