Operating a home based business is a great way to earn income for many people. According to statistics, three out of ten people work at home. This type of business has a lot of benefits in comparison with traditional 9 to 5 office jobs: you can be your own boss, work in your pajamas, set your own work schedule, and spend more time with your family.

But don’t forget that any home business is just that – a business. Whether you spend 2 hours or 42 hours per week at your home office, it remains a business with all the risks and rewards associated with running your own company.
How much does your office equipment cost? What would happen if a fire or natural disaster destroyed your property, making it impossible for you to get back to your business right away? How much would it cost to rebuild and reequip your home office?

These questions are rarely considered by most people who run their businesses from home. Otherwise, they would think about purchasing at least the minimum amount of business insurance. In fact, it is estimated that over half of all home based business owners have inadequate coverage. Why?

When you work at home, you might be under the mistaken belief that your business is insured under the homeowners’ policy. It is difficult to admit that “this room is my home, and this room is my office” – the second room is also your home!

The statistics prove this fact. According to the Independent Insurance Agents of America (IIAA), nearly 40% of home based business owners they surveyed are uninsured mainly because they thought their homeowners’ policy covered their home based business. But it is not so, unless your home insurance company knows that you operate a business out of your home!

Let’s prove that statement. A typical homeowners’ policy usually:
• covers damages up to $2,500 on the premises of the home-based business, and $250.00 off the premises.
• does not cover business liability;
• does not cover loss or damage of electronic data;
• does not cover damage to persons visiting your business at home (e.g. customers and suppliers);
• does not cover loss of income caused by business interruption.

Even if you want to protect only your property and its contents, homeowners’ policy is often not enough. Is your home office well equipped? Its contents (a computer, a printer, phones, a fax, a scanner, a desk, etc.) can cost much more than just $2500!

So if you are one of those people who rely solely on their homeowners’ policy, your home based business may be also uninsured or underinsured! This type of insurance will not properly cover the loss or damage to your home office. You need to think about additional coverage specially targeted at people who operate their business out of home.

Some people don’t want to insure their home based businesses just because they think that it will cost them hundreds of dollars. Actually, it is not so. The premiums start from $15-$25 per year. So everybody can afford to buy at least the minimum amount of coverage.

Home based business insurance is an area of rapid evolution in the insurance industry. The growing number of such businesses makes insurance companies develop new comprehensive products that suit their specific needs and requirements. Basically, there are three ways to insure your home based business.

Endorsements on homeowners’ policies
The first choice you have is endorsements and riders on standard homeowners’ policies. For example, the AARP Home Business Insurance Plan works together with a homeowners’ policy from the AARP Homeowners Insurance Program.

Depending on what type of home based business you operate, you can get an endorsement on your homeowners’ policy that has higher limits or covers specific types or risk. For example, for as little as $25 a year, you can expand your standard policy limits for business equipment from $2500 to $5,000.

Typically, insurance companies offer endorsements that include property and limited business liability coverage. It is available only for those businesses which have a limited number of visitors. In the case of an insured event, the insurance company will cover medical bills, defense fees and court judgments for business-related lawsuits.

In-home business policy
Do you think that endorsements are not enough to cover your financial loss if something unexpected happens? Nowadays many insurance companies offer in-home business policies. They combine several policies into one insurance contract, designed specifically for in-home businesses.

Typically, in-home business policies have a very reasonable cost. For an affordable annual premium of $200 per year you can insure your home business for about $50,000. In-home business policy will cover loss of income and loss of valuable documents; protect your off-site business property and equipment.

In-home business policies can vary depending on the provider. For example, State Farm Insurance offers a Business In The Home Program which includes Property, Liability, Loss of Income and Records insurance policies.

When you buy an in-home business policy, you can typically choose many additional options that let you tailor your policy to fit your own particular business needs. What other types of coverage do you need? The answer depends on what kind of home based business you are operating.

There are some special policies designed for particular kinds of businesses. For example, a professional should have professional liability insurance. If you are involved in homemade personal care production, you need to think about some special policies.

Business owners’ policy (BOP)
For the majority of home based business owners the most efficient and cost effective way to obtain coverage is to buy a business owners’ policy (BOP). It combines a number of different types of coverage combined into one contract.

It sounds similar to the in-home policy, right? Yes, these types of insurance have similar features. In fact, many insurance companies tell that in-home business policy is a kind of BOP. However, there are some differences that let us divide them.
Similar to the in-home policy, BOP covers business property and equipment, loss of income and extra expenses and liability. However, the coverage in the BOP is on a much broader scale. This policy can be an excellent choice for those home based businesses that perform activities from several locations.

Traditionally, the business owners’ package offers a simple, off-the-shelf product to small and medium sized business owners. This form of insurance is approved in 39 American states including the District of Columbia. BOP can cover businesses as large as 25,000 square feet and with gross sales of up to $3 million.

BOP typically includes property insurance for buildings and their contents; business interruption insurance which covers the loss of income caused by a fire or a natural disaster that stops your business operations; and liability protection which covers your company’s responsibility for the damage it may cause to other people.

Some business owners’ policy may protect you against liability for the harm caused as the result of advertising goods or services on your website, for example an advertisement that slanders another company’s goods or services. It is very useful for people who are involved in e-commerce.

Business owners’ policy provides the option to add other types of coverage that your home based business may need. You can buy professional liability coverage, worker’s compensation, health and disability insurance or protect such items as fine arts, special equipment, or valuable documents and records.

One of the most common additional policies is a business vehicle insurance. Do you use your personal car for business? Honestly? Well, your personal auto insurance probably provides some coverage for business use of your vehicle. However, it typically doesn’t cover expenses if the vehicle is used primarily in business. So pay attention to the details of your insurance contract to protect yourself from a potential financial loss.

For example, imagine that you are driving your own car for a business purpose and get into an accident. The police say it is your fault. In this case an injured person may sue you personally. Are you sure that your personal car insurance will cover all expenses? If not, the injured person may file a lawsuit against your business. So if you use your personal vehicle for business needs, you need to have enough coverage to protect your company.

If your business involves e-commerce, then electronic equipment and data are vital to the operations of your business. You cad buy additional police covering some unique property and liability risks like loss of customer data from your database.

Typically, BOP includes two types of coverage related to electronic data. Computer operations interruption coverage protects the loss of business income and additional expenses incurred as a result of computer problems.

Electronic data loss coverage will pay the cost to restore or replace electronic data damaged in the result of a computer virus or a harmful code. Such an accident can be a very serous threat for any home based business.

As you know, e-commerce also creates liability risks. If you think that you need more coverage, there are several additional endorsements you can choose from. Some insurance companies may offer you electronic data liability endorsement. It covers liability which resulted from the loss of electronic data caused by an “electronic data incident.” This coverage can help you protect against lawsuits from disgruntled clients or customers!

If you decide that you need to buy insurance for your home based businesses, take into consideration the following tips and advice. They will help you analyze you needs and decide what type of coverage suits you most.

• Keep in mind that many policies have exclusions for “illegal” business operations, so it is important to determine if you are allowed to run your type of home based business in your state or community. Don’t try to protect your hacking business from computer operations interruption!
• Take an inventory of your office equipment and software. How much would it cost to replace them? You can check all prices at online e-stores or go to a local store. This sum is the minimum limit of property insurance that you need.
• Take notes of how many people are physically involved in your home based business. Don’t forget to include couriers who may come to your home, customers and any employees. This information will help you understand what business liability coverage you need to get.
• Do you store the information about your clients or your company on the home office computer? Consider the opportunity to lose any valuable electronic data. What will happen? Analyze how much this accident will cost you. It will help you determine whether or not you need to buy coverage that protects against electronic data loss.
• If you lose your home office, will it result into the loss of income? If your answer is yes, then you may need to think about business interruption insurance.
• If you have a personal vehicle that you often use for business or if your home based business is the owner of a vehicle, then you need to purchase a business vehicle insurance.
• Work with an insurance professional and explain your current operations and risks that your home based business faces. It will help them offer you appropriate coverage.
• Your home based business must comply with all regulations, laws and statutes in your state. Otherwise, your coverage may be cancelled you will lose money.