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September 4, 2009

Inside Insurance: Protect your home-based business

There’s nothing like a major economic recession to turn laid-off employees into home-based entrepreneurs.

One of the brighter aspects of the current economic downturn is that many new small businesses are now up and running.

Consider this first. Start a home-based business — whether in a home or an apartment — the right way by making sure you protect the business and its equipment and/or inventory. Your insurance must be updated to cover this new venture.

Caution: The standard homeowners insurance policy does not cover losses of business equipment, technology, income, liability exposure, medical costs and other risks faced by small business owners.

Small businesses that are most often at risk include: computer consultants, household product distributors, accountants, architects, real estate agents, photographers, tailors and seamstresses, beauticians, consultants, pet groomers/sitters and music/art/dance instructors.

When insuring your business, there are three basic choices, depending on the nature of your business and the insurance company you buy it from. They include homeowners policy endorsement, in-home business policy/program and business owners policy.

According to the New York-based Insurance Information Institute, you may be able to add a simple endorsement or rider 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.

Adding an endorsement to your homeowners policy is the least expensive option, but it might not be sufficient if you have a lot of expensive business equipment. It also doesn't provide business liability or product/completed operations coverage. Nor does it offer business income coverage (coverage for the loss of business income you sustain due to the necessary suspension of your operations).

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