With the national unemployment rate lingering around 10%, many people may be tempted to start a home-based business.  But according to Insurance Information Institute, nearly 60% of home-based businesses have no coverage. 

A common misconception is that homeowners insurance policies offer coverage for a home-based business, but in fact they usually provide no more than $2,500 to replace damaged or stolen business equipment.

Standard homeowners insurance policies provide neither business liability nor business income (also known as business interruption) coverage for home-based businesses. These forms of protection are necessary in case an employee or customer is injured on the premises.

When insuring your home-based business, there are three basic choices, depending on the nature of your business:

1. Homeowners Policy Endorsement
   You may be able to add a simple endorsement or rider to your existing homeowners policy that doubles the $2,500 standard coverage for business equipment such as computers.
   
   Adding an endorsement to your homeowners policy is the least expensive option, but it may not be sufficient if you have a lot of expensive business equipment. It also does not provide business liability or business income coverage.  You can buy a homeowners liability endorsement that will protect you in case clients or delivery people get hurt on your premises and sue. This is typically available only to businesses that have few business-related visitors.
2. In-Home Business Policy
   An in-home business policy provides more comprehensive coverage for business equipment and liability.  The average home-business insurance policy can cost anywhere from $250-$500.
   
   In addition to protection for your business property, most policies reimburse you for the loss of important papers and records, accounts receivable and off-site business property. Some will pay for the income you lose in the event your home is so badly damaged by a fire or other disaster that it cannot be used for a certain period of time. Some in-home business policies cover a certain number of full-time employees, generally up to three. 
3. Businessowners Policy (BOP)
   The Businessowners Policy, also known as a BOP, is like an in-home business policy.  It covers business property and equipment, loss of income, extra expense and liability.
   
   A BOP doesn't include workers compensation, health or disability insurance. If you have employees, you will need separate policies for these coverages. If you are using your car for business activities you need to make sure your automobile insurance will protect you from accidents that may occur while you are on business.

A safe work environment can help lower property premiums. Make sure you have fire detectors and a security alarm system.  Also have a computer-data backup procedure, and store the data backup away from your home.

Information from Insurance Information Institute