You make that familiar left hand turn into the old neighborhood and immediately sense something is wrong. Call it intuition. As you round the last corner to your street, the red flashing lights confirm your worst fears. Firemen hose down the remnants of all that remains of your home. A few wisps of white smoke mark what had been a spectacular 3 alarm blaze just an hour ago.

Fortunately all of your loved ones are with you in the car. But you own and operate a home-based business. Are you covered by insurance? Are you now bankrupt?

If you are like the majority of home-based business owners, you’re in serious trouble. I’m surprised at the number I talk with who don’t have insurance coverage to protect their home business operations and equipment from theft, damage or loss. Many even assume they are covered when they are not.

Although too often neglected by home entrepreneurs, in surance should be an important part of any business plan. Minimal in surance coverage brings peace of mind and could save your business in the event of a fire, flood, theft or other uncontrollable occurrence. Ask yourself the question — if your home was completely destroyed by fire today, would you have a business tomorrow?

Insurance Problems for Home-Based Entrepreneurs

Home business owners face no less than an “under-insurance” crisis. The main problem is a mistaken belief that existing insurance policies automatically protect home businesses. In fact, many homeowner policies contain language and clauses that explicitly exclude coverage for business uses and business property. Examples of other insurance problems for home business owners include:

• Business use of an automobile — Accidents while on a business trip or business property stolen from a car may not be covered under existing property and automobile policies.

• Theft or damage to home office equipment — Often not covered under homeowner or apartment dweller policies, which usually cover only personal property.

• Healthcare — Inadequate or lack of coverage altogether, in higher proportions than the non-home business population

• Disabilities — Lack of coverage to protect income in case you become disabled

• Coverage — Not getting the correct types.

• Existing homeowner policies — voided due to a business being operated from the home

• Special coverage — lacking for computers and software.

• Liability — no coverage for people who visit your home for business purposes or for liabilities that result from business activities outside the home.

• Partnerships — No liability coverage for actions of partners

• Business Interruption — Almost a wholesale lack of coverage by home business owners.

• Home offices — separate and/or detached structures not covered under homeowner policies

Do any of these sound familiar?

Bad Assumptions about Insurance

The reasons too many home business owners neglect getting the right amount of insurance run the gamut of excuses, some completely irrational. Many are not even aware of the risks they take when operating a business from the home. Bad assumptions behind these excuses and misconceptions include:

• A belief that it can’t happen to you, which, chances are, is correct. They then regret not having insurance when the odds turn against them.

• Belief that business operations are covered by existing non-business policies. The basic misconception of home business owners.

• Special insurance policies cover every possible related occurrence. Not true. Policies only cover what is in the fine print.

• Risk is too small to justify the cost for insurance. Insurance costs, however, are based upon risk characteristics.

• Costs beyond budget. If you can’t afford to replace your business out of pocket, then insurance must be part of that budget.

• Belief the costs are too much. An extremely competitive insurance market should mean you only pay what is reasonable.

• A part-time operation is OK for existing homeowner policies. Wrong again. To an insurance company, any level of business activity is business activity.

• Common activities related to your business don’t fall under the heading of business activities. For example, this might include a delivery man visiting your home. These kinds of activities are business activities.

• Home business owners don’t think they can obtain business insurance. Yes, you can!

How Much Insurance Do You Need?

Meet with an insurance broker to evaluate your business needs; everyone’s are different. Many brokers represent more than one insurance company. Let them do the checking. Review carefully the different types of insurance policies and what they cover, as follows:

Homeowners — Personal property and possessions from damage due to fire, theft, flood and vandalism.

Automobile — Damage due to collisions, uninsured motorist, theft, vandalism and liability related to personal use. Extent of usual business coverage is transportation to and from work. Automobile might need to be declared as a business vehicle in order to maintain coverage.

Health — Preventative health care and illness

Computer — Additional coverage beyond homeowner policies for software, hardware and data.

Business Property — Damage or loss to business equipment in the home office.

Small Business — More extensive coverage for damage or loss to business inventory and equipment. Can include basis coverage for business liabilities, loss of earning, and errors and omissions.

Liability — Visitors to your property for business purposes. Basic liability covers slip and fall, dog bites, etc.

General Liability — Accidents to either you or another party while doing business away from home. More extensive coverage than basic liability. Can provide special liability coverage to protect against claims and damages that result from the rendering of services or sale or products.

Disability — Loss of income and earning if unable to work for an extended period of time due to illness or injury.

Business Interruption — Losses from inability to conduct business due to fire, flood or disaster, most often requiring that you close or relocate your home office. Covers cut-backs in business revenue while you recover. Can provide funding to meet cash flow obligations such as payroll and loan payments.

Malpractice — Damages and claims that result from providing products or services. Covers injury or loss to the client. Can include errors and omissions and product liability insurance.

Workers Compensation — Work-related injuries for employees. Highly influenced by state regulations.

Automobile Busi ness — Busi ness property in car or claims and losses that result from business use of a vehicle. Cov ers situation beyond the transport to and from work. Transport goods and merchandise.

How to Keep Insurance Costs Affordable

Insurance should be phased in as your home business moves through the primary phases of start-up, growth and expansion, and long-term stability.

• Business Start-up: As maximum capital is needed and cash flow is minimal, maximize the use of existing policies. Computer equipment — often the largest investment — can be covered by riders to existing policies. Floaters and endorsement to homeowner and auto policies will provide limited protection for business activities in the home or vehicle, as well as an expansion of personal liability if you carry out business activities away from home. Consider declaring one of your vehicles as a business vehicle and adjust its policy to cover business activities. Additional annual coverage might run from $250 to $1,000.

• Growth Phase: Business expands and cash flow starts to catch up. At this point you may want to consider — particularly if over 25 percent of your home is used for business activities — separate policies for business property, small business and general liability. Separate insurance for commuters is highly recommended. Additional annual coverage might run from $1,000 - $1,500.