Property and Liability Insurance

If you operate a home business full-or part-time you might be uninsured and not realize it. Many home business owners believe that their homeowner's insurance policy covers all their home business needs. You should not assume that your homeowner's policy would cover your home business. Your homeowner's insurance policy may provide coverage but probably only to a maximum of $2,500 for business equipment in the home and $250 away from the premises. These limits might be far too low if a fire destroyed your home office and all of its contents.

Your homeowner's policy usually does not cover business-related liability, for example, if a customer or supplier is injured on your property. A homeowner's policy also does not insure your inability to collect your accounts receivable if your business records are damaged, and your policy will not replace lost income if you cannot operate your business due to damage to your home.

There are several ways you can buy home-based business property and liability insurance:

Homeowner's policy endorsements. Depending on your home business, you may be able to add an endorsement to your existing homeowner's insurance policy. For example, some insurers offer a home day care endorsement for people who operate a home day care service for pay in their home. For a nominal amount, you may be able to raise your coverage.

You may also be able to add an endorsement to your existing homeowner's insurance policy that can increase the standard coverage for business equipment. For example, you may be able to raise your coverage to $5,000. In many cases, this type of endorsement may only be available to a home-based business with revenues of $5,000 or less.

Some types of home-based businesses may be able to purchase a homeowner's liability endorsement to protect you in case someone gets hurt in your home in the course of conducting business. For example, a client or delivery person may fall while walking up your steps and sue you for not keeping your home in a safe condition. A liability endorsement would protect you from such a claim. Typically, this type of endorsement is only available to those businesses that have few visitors.

In-home business policy. This option provides greater coverage for business property as well as for liability than the homeowner's policy endorsement. Depending on the terms of the policy, an in-house business policy can provide coverage for: loss or damage to business property; loss of important records and papers; lost income associated with business interruption (e.g., from a fire); expenses of operating out a temporary location.

Business owner's policy (BOP). A BOP is a package insurance policy specifically created for small to midsize businesses that provides coverage for business property, general liability and business income lost due to a fire or other covered event. BOPs do not cover worker's compensation, health, disability or auto insurance, each of which requires separate insurance.

Business interruption/continuation insurance. Business interruption/continuation insurance replaces income and pays for expenses that continue to accumulate as a result of a covered loss. Some level of business interruption/continuation coverage may be included in one of three insurance options outlined above.