Individuals who run a home-based business or work out of their home full- or even part-time may be surprised to learn that their insurance coverage for their business property and liability is limited. In fact, if you are relying on your home insurance policy, you are likely to have limited, if any, coverage for your business-related property and business-related liability incidents.

The fact is that most standard homeowners policies limit coverage for office equipment—whether you or your employer own it—to around $2,500. Would this be enough to replace all of your office equipment? What about your files and records? How would you be compensated for business downtime if your home office were destroyed by fire, or you were unable to work in your home while repairs were being made? And if a deliveryman slips on your front porch while making a business-related delivery to your home, would you have coverage if he sued?

You likely have to buy additional coverage to fill the gaps if you have a home office or a home-based business. There are several fairly simple and cost-effective ways to do this.

1. You can add an endorsement, or rider, to your homeowners insurance policy. These endorsements typically provide about $2,500 in additional coverage for office equipment and some additional liability protection if you are sued in the course of doing business out of your home. Home office endorsements are recommended for smaller, one-person businesses that do not have a lot of equipment on hand and few business-related visitors. In addition, home office endorsements are appropriate if you would not suffer major revenue losses if you were unable to operate out of your home after a disaster or while repairs are being made.
2. You might need to consider a specialty in-home business or home office policy. An in-home business policy is a low-limit version of business insurance policies designed for larger businesses. Typically an in-home business policy provides $10,000 in business property coverage, and you can choose a liability limit between $300,000 and $1 million. If you purchase one of these policies, you will have some coverage for the loss of valuable documents, accounts receivable, offsite business property, and use of equipment. The protection is still limited, but much more broad than what is provided by a simple endorsement on your homeowner’s policy.
3. If your home-based business is sizable, you may want to consider a business owner’s policy (BOP). A business owner’s policy is designed for small businesses, and bundles several types of business insurance into one policy. It allows small business owners to access broad coverage at an affordable price, and is recommended for home-based business owners who need more than $10,000 of business property coverage as well as coverage for damage to equipment and other assets. The BOP also provides extended liability protection, as well as loss of critical records coverage and business interruption coverage.

Don’t Forget Professional Liability Coverage

If you provide professional advice and service from your home-based business, you also likely need professional liability insurance. Professional liability insurance, or errors and omissions insurance, covers professionals for damages caused by providing or failing to provide professional services. You can be sued for providing faulty advice, making errors in the services you provide, or if a client loses money because of an act of negligence or an omission made by you. Most professional liability policies cover your defense costs as well as any settlements or judgments that you are required to pay.

Traditionally only professionals such as doctors, lawyers, architects, engineers, and accountants needed errors and omissions insurance. Now professional liability insurance is becoming equally important for professionals including actuaries, real estate agents, insurance agents, and more. In addition, advertising and PR firms, Internet service providers, Web hosting companies, and many other types of firms now must seriously consider investing in professional liability coverage—even if you work out of your home.

If you run a business out of your home or you regularly work from a home office, don’t let all that you have worked for go down the drain. You might think that you don’t face significant liability exposures or that your office equipment is covered under your homeowner’s policy, but if you have business-related visitors, you have a significant amount of office equipment and records, or if you provide professional services for clients, you actually have significant insurance needs beyond what is provided by your homeowner’s insurance.

Do you run a home-based business or work from home full-time? Have you considered that you might have some gaps in your insurance coverage?