Property and Casualty Insurance for a Home-Based Business

More and more entrepreneurs are operating their new businesses from home. The advantages are obvious: running a home-based business is convenient and cheaper than renting or buying commercial office space. But running any business — including a home office — without adequate insurance coverage can

Neglecting to purchase separate property and casualty insurance for your home-based business can be a costly mistake. Your homeowner's policy might not offer enough protection. Most homeowners' policies cover only $1,000 to $2,500 for business equipment, and do not offer liability protection or loss-of-income coverage.

When deciding how much property and casualty insurance to purchase, examine your business and the amount of money you risk losing. Your home-based business should be covered for incidents such as:

• Client injury. If clients physically enter your home, you should be covered for injuries due to negligence. The coverage will pay for your client’s medical expenses and the cost of defending a lawsuit if you're sued. Read more about Liability Insurance for Your Small Business to understand all the scenarios that should be anticipated.
• Business interruption. If damage to your company's operations limits your ability to work, you'll be covered for lost wages and ongoing expenses, including suppliers' invoices. Interruption insurance is typically included in your business property insurance, but depending on your other arrangements, you may wind up buying it separately.
• Business equipment damage. If your equipment is damaged or destroyed by theft, fire, or a natural disaster, you'll be reimbursed for the cost of repairing or replacing it.

Premiums start at about $200 a year for $10,000 of property coverage, and you can purchase as much as $1 million in additional liability coverage.

If your home-based business requires a separate property and casualty plan, consider purchasing an endorsement; it increases the coverage of your homeowner’s policy and starts at about $15 a year. This option may make sense if you have inexpensive business equipment, no liability exposures, do not store business inventory at home, and do not rely solely on your income for survival.

You should think about purchasing a business owner's policy (BOP) if you stock a lot of inventory, manufacture products, or are at high risk for professional liability. BOPs offer the most comprehensive coverage available; in addition to providing home-office coverage, BOPs offer extended liability and equipment coverage.

Discuss the different types of home-based business insurance with your insurance agent to determine which policies best meet your needs. And remember to review your insurance policy annually — as your business changes and grows, so will your insurance needs.