These days, many employees are becoming home-based contractors for their former employer, or even striking completely out on their own.  You may be among them.

If you are, remember this: once you are on your own, you will not be covered by your employers' insurance packages.   Because you are busy thinking of all you need to do to start up a new venture-whether you'll be using familiar job skills or new ones entirely- insurance may be the last thing on your mind.

Think again.  If you forget an essential part of a computer program you are contracted to write and your client loses business because of it, the client may sue.  If your new personal shopping service supplies an item that injures a client...lawsuit!  In each case, an Errors and Omissions policy could have saved the day.

And then there is the possibility of fire, flood, theft...in short, all the usual risks of living, and then some.  As the owner of a small business, there are three ways you might cover those risks

1. Homeowner's insurance endorsements: suitable for a small home business with minimal equipment and no business visitors or business deliveries. Beware: the Independent Insurance Agents of America (IIAA) advises against this minimal coverage.  Your personal agent might, too.

2. Home office policy/in-home business policy:  this offers business liability and lost income replacement, as well as other usual risk coverages.

3. Business owner's policy:  This provides the most comprehensive safeguards similar to those found in commercial policies, but with prices designed for the home-office market.

If you are like most new home-business owners, you may think your homeowner or renter's coverage will be enough.  That is too bad, because in many instances, your current homeowner's policy won't be enough.  It may even exclude business use of your home entirely.  Even if it does cover business use, it is likely to be for very small amounts, $2,500 on premises, and as little as $250 for losses off-site, such as a stolen laptop.

Plus there is the vital issue of business data.  Suppose a scenic stream runs across the back of your property...and it floods in a hurricane and floats the books, files, and software needed to run your business, bill your clients, and collect fees.  Unless those things are covered under a home office or business owner's business policy, it is unlikely the loss will be covered at anywhere near what it will cost you to reconstruct all that information.

If someone slips and falls on the muddy walkway, trying to visit you the day after the flood for business purposes, your homeowner's policy probably will not cover that, either. 

And then there is the issue of business slip-ups like those mentioned above.  No matter how good you are at what you do, no one is perfect.  You will want to consider coverage so mistakes do not put you out of business.

Before you begin your consulting arrangement or new business, sit down and discuss with your insurance agent all the risk factors you could be facing.  You may not be able to afford to cover every risk right away, so ask for your agent's help to prioritize the risks.  If, for example, customers will not be visiting your office for a while, leave that liability coverage out for now.  But if you will visit customers and bring equipment along, cover this risk; you need that equipment to do business, after all, and your business will suffer it if is lost or damaged.

Remember to consider your vehicle use, too; will you use public transportation to visit clients, or your personal car?  Will your personal policy work, or would commercial insurance better provide the best protection?  If you are buying a van or truck especially for business needs, there is ample reason to consider commercial vehicle insurance.

Finally, consider the possibilities if you becoming ill or are injured and cannot work.  By going out on your own, you have lost the safety net of the disability insurance your former employer most likely carried.  If you have a working spouse, you may be able to delay obtaining disability insurance for a time, but it is one of the coverages most people feel a lot more comfortable having, working spouse or not.

Once you have prioritized and decided upon your initial insurance package, remember to speak with your agent periodically and to add those coverages that you put off for cash flow reasons, or simply did not need at the time.

Sidebar:

Getting to the Heart of the Matter

Use questions like these to determine the nature of your new work arrangement or business and to help prioritize your insurance purchases:

·        What type of equipment do you have and how much did it cost?  How much to replace?

·        Is the equipment dangerous?

·        Does your business own any property?

·        Where do you conduct business--home or client offices or your own premises?

·        Do you need a vehicle for business?

·        Do you have or plan on having employees?

·        If you make an error, can a customer sue you?

·        If building damage happens, from fire to flood, will it shut down your business?

·        Do clients visit your home to transact business?

·        Do you take expensive equipment to client sites?

·        If you are injured and can't work, where will you derive an income?