There are nearly 20 million home-based businesses in the United States. But some 60 percent of them are gambling with the future of their businesses and don’t even know it. According to the Independent Insurance Agents of America Inc. (IIAA), an Alexandria, Virginia-based trade group, these home-based entrepreneurs don’t have nearly enough business insurance coverage.

Many entrepreneurs mistakenly believe they’re covered by their homeowners insurance. However, most homeowners’ policies limit loss of business property to around $2,500, won’t cover losses away from the home, and exclude liability coverage for business-related activity. Consider these ordinary risks:

· A graphic artist can easily have $20,000 in computer equipment and software in the home office. Homeowners insurance usually has limits of about $2,500.
· Sales representatives often take a laptop and cell phone on the road to meet with customers. Homeowners insurance doesn’t cover these when away from the home.
· A client could slip and fall during an appointment at a home-based bookkeeping service. An accident in your home is not covered if related to business use of the home.
· A home-based manufacturer could be held liable if his or her product injured someone. This coverage is not a component of homeowner’s coverage.

Types of Insurance

As a home-based business owner, liability and property damage are two types of insurance you need to investigate. Liability protects you against someone getting injured on your premises or by one of your products, while Property Damage protects against damage to things from computers to carpets. The most protection you can receive will be from a Business Owner’s Policy, although a Home Office Policy may provide enough protection in your situation. If you are won’t have customers coming to your premises for business purposes, a Business Pursuits endorsement on your homeowners policy may be enough. A Business Owner’s Policy (BOP) includes both liability and property damage coverage, and usually covers typical hazards like loss of data, software or income; theft; and general business liability. In many cases, the structure housing your business is also covered, so this might duplicate your homeowners’ coverage. A BOP also provides some off-premises coverage, including liability coverage for products you sell or parts you install. Things like flood protection or insurance for outdoor signs may be optional in some cases. And, be certain that tools such as laptops and other equipment taken to a job site are covered in the policy. This, too, may be an add-on.

A Home Office Policy is a step down from a BOP. This policy combines homeowners and business insurance, eliminating duplicate coverage, such as the structure itself. This is a good choice for a company with no more than a handful of business visitors each week and an investment in quality office equipment. It covers general business liability, lost income and ongoing expenses like payroll for up to one year if the business can’t operate because of damage to your home. Also covered are loss of records, accounts receivable, some off-site business property, fire, theft and personal liability. Many policies don’t cover “options” such as floods or earthquakes, so be sure to ask about these if they are important in your situation.

A Business Pursuits endorsement to your homeowner’s policy provides the least protection, and isn’t recommended for most home-based businesses that have customers on site or costly equipment. However, it may be well suited to your business, so ask about this type protection to see if it is a lower cost fit. Read the fine print on your current homeowners’ policy to find out the restrictions on business property and activity in the home.

Cover Your Assets

Examine your business and your assets to determine your net worth, likelihood of business interruption, and liability “red flags.” When you’ve found a policy that’s within your budget and covers possible losses, review it yearly to make sure it’s still adequate. If your business has employees, you will be required to have workers’ compensation insurance, which covers employees’ injuries on the job. Requirements vary from state to state–check with your state’s employment office to see what’s required.

If you will be operating your business from your home, make sure you have the necessary insurance protection, and take additional steps to protect yourself. Here are some suggestions collected from insurers and risk assessment consultants:

Crime Prevention
· Notify your police agency that you would appreciate regular patrols;
· Install smoke and fire alarms, fire extinguishers, emergency lights, and deadbolt locks on exterior doors;
· Install motion-sensing lights in dark outside areas;
· Keep your office equipment out of view from the street;
· Keep money and important documents in a fireproof safe, or off site;

· Have your electrical circuitry inspected for overloads by a professional;
· Keep driveways, steps and walkways free of ice and debris;
· Remove loose throw rugs from walking paths;
· Do not allow customers to operate any of your equipment;
· Establish safety rules, and enforce them;
· Conduct regular preventive maintenance on all equipment.

Liability prevention:
· Don’t accept work assignments you aren’t qualified to perform or make promises you can’t keep;
· Have an attorney review contracts to avoid assuming someone else’s liability.

Disaster Recovery
· Make clearly labeled backups of important documents and store them at another location off site;
· Develop a disaster recovery plan to help you return to normal operations quickly;
· Test your disaster recovery plan on an ongoing, periodic, basis.

Honestly Assess Your Insurance Needs

Commercial or business insurance offers property and liability coverage, but only to the limits you establish when purchasing your coverage. If you are self-employed, in effect you own your own business and are responsible not only for your own equipment and supplies but also for any damage to your clients and their property. Make sure you acquire adequate coverage for your situation. Rates for this insurance will vary depending on the risks involved in your business.

The Independent Insurance Agents of America Inc. states the primary factors in determining cost of business insurance coverage are: · The likelihood of a loss occurring-The greater the probability a loss will occur can mean a higher rate {e.g., earthquake insurance in California). · The potential size of the claim-If you purchase a large amount of coverage (that is, if the item you are insuring is quite valuable), the chances are there could be a large claim and the premium will need to cover that possibility.

The percentage of loss the insurance company will be required to pay-If you have no deductible, the company will pay 100% on a covered loss. This increases their risk and your premium. To understand how a deductible works, consider the following: If the deductible on your auto insurance is $100, it means you agree to pay this amount first, and your insurance company will pay for damages exceeding this deductible. By increasing your deductible from $100 to $250, or even $500, this decreases the insurance company’ risk, which may mean a savings in your premium.

Other factors can influence premiums, too, such as the volume of lawsuits and the average amount awarded in your state in litigation that could arise from your business practice. In short, your insurance company tries to ascertain how much it needs to accumulate from its insureds to cover all the claims it will potentially receive.

Talk to your local homeowner’s agent, and ask a lot of questions to determine the amount and type of insurance your business needs. If you can’t get satisfactory information, seek out a commercial insurance agent. Independent agents typically will represent half a dozen or more carriers, so be sure to ask for coverage comparisons and rates.

Start your search with this information in hand:

· What inventory items do you have at home?
· How much equipment?
· How much would it cost to replace your inventory and equipment?
· How many customers come to your home office?
· Will you be taking equipment to customer sites?
· What would happen to your business if a disaster forced you out of your home temporarily?

As with so many factors in business, the better you understand what details you must analyze the better you will be able to prepare. Risk assessment is certainly one of those areas that requires your most forthright effort.