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Options to consider when insuring your small home business

More than half of America’s businesses are home-based, according to the U.S. Small Business Administration. But setting up headquarters in your home doesn’t mean your homeowners insurance will adequately protect your operation.

“A typical homeowners policy provides about $2,500 of coverage,” says Loretta Worters, vice president of communications for the Insurance Information Institute. That usually will cover equipment — but it won’t offer liability protection or cover you for lost data or income.

Do your research to protect yourself and your home business. “An important thing for any business owner to do when starting out is to create a business plan,” says Worters. “That includes having the right type and amount of insurance coverage.” Here are three options to consider when insuring your home-based business.

A homeowners policy with increased business property limits

Your homeowners policy may cover up to $1,500 worth of personal property, such as a desk or merchandise held as samples, e.g., Mary Kay Cosmetics. This coverage protects business property while it’s used or stored inside your home. The policy may also offer up to $750 worth of coverage for your business property while it’s away from your home. If your home-based business is small, this might be enough coverage. If not, you have the option to increase those coverage amounts with a homeowners policy endorsement.

You might consider adding a homeowners policy endorsement to your existing coverage if you:

• Plan to have less than $4,999 worth of business property kept at your home-based business location.

• Don’t invite customers to your home-based business location.

• Only have $750 worth of personal property intended for business use outside your home.

An in-home business policy

An in-home business policy provides more comprehensive coverage for business equipment and liability than a homeowners policy endorsement. These policies, which may also be called in-home business endorsements, vary significantly depending on the insurer.

Business insurance policy

While your homeowners insurance policy might come with liability protection for certain incidents that happen inside your home, it does not extend to home-based, business-related activities. For example, if a customer comes to your home to exchange payment for goods or services and suffers an injury, there may not be coverage under your homeowners policy. Coverage gaps can easily be fixed with a business insurance policy. You might consider a business insurance policy if you:

• Provide services directly to customers while in your home, such as tax preparation or hair services, which may require additional specialized liability coverage

• Plan to have $5,000 or more worth of business property kept at your home-based business location

• Rely on the income from your business to support your household

Few other considerations

• Additional insurance: Re-evaluate your coverage as your business grows and your needs change.

• Zoning laws: Visit your local planning office to review restrictions that could affect your business.

• Licenses and permits: Find out which licenses and permits you need to run your business legally.

• Taxes: Talk to a tax professional about tax laws for home-based businesses.

Also research money-saving deductions, such as the home office deduction.

Vehicles: If you’re using your vehicle for home-based business-related activities, ask your agent about getting it rated as a business vehicle on your auto policy to make sure it’s properly covered.

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