MONEY MANAGEMENT

INSURING YOUR HOME-BASED BUSINESS

(July 1, 2007) -- Depending on who is doing the counting, there are anywhere from 10 million to 25 million home-based businesses in the U.S. But there is little disagreement that too few home-based business owners have insurance — and all of them should.

One reason may be the misconception that a homeowner’s policy fully covers a business in the home. Not so, says the Virginia Society of CPAs. Here are answers to some frequently asked questions about insuring a home-based business.

How does a homeowner’s policy apply to a home-based business?

Homeowner’s policies vary, but generally speaking, most provide only $2,500 in coverage for equipment, such as computers, fax machines, and office furniture used in an in-home business, and that coverage drops to $250 if you take that equipment, such as a laptop, away from home. That’s not much coverage when you consider the cost of today’s home-office technology. What’s more, homeowner’s policies provide no liability insurance for home-based businesses.

What type of coverage does my home-based business need?

At the very least, most home-based businesses need property and liability coverage. Property coverage insures against loss or damage to your business structure and equipment. Liability coverage protects you against someone getting injured on your property or by your product or service.

Some home-based businesses need special kinds of coverage above and beyond property and liability coverage. Businesses that offer professional services may need professional liability insurance, and those that manufacture or sell products that could unintentionally injure someone should have product liability coverage. For home-based businesses that have employees, workers’ compensation coverage is a must. Check with your state’s employment office because requirements vary by state.

When deciding on coverage, closely examine your business’ circumstances. If you’re a personal trainer and you have clients coming and going from a gym housed in your home, you would need more liability insurance than a freelance writer who doesn’t have many visitors. If your business sells a product, be sure your policy covers your inventory.

What are my policy options?

There are three basic options. Depending on the type of business you run from your home, you may be able to add a rider or an endorsement to your homeowner’s policy that will protect the business equipment you have in your home. This is the least expensive option, but may not offer the coverage you require, particularly if you need liability protection.

A second option is a type of policy that combines coverage for both your home and a business run from your home. These policies insure your home and your business equipment, whether the equipment is used in your home or taken elsewhere, and also provide both personal and business liability coverage. With a combined home and business policy, you can generally avoid both gaps and duplication in coverage.

Thirdly, you may want to consider purchasing coverage for your business under a business owners package, which includes property and liability coverage, packaged with insurance for other perils, including accounts receivable coverage and loss of income coverage. The premiums charged for business insurance can vary, so be sure to shop around.

What’s the best way to buy coverage for my in-home business?

CPAs say you should interview a few agents and choose the one that you feel best understands your business needs and has access to a variety of home-based business insurance products. As your business grows, your insurance needs are likely to evolve as well. That’s why CPAs suggest that you review your home-based business needs at least annually.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.