Liability Insurance
Most home-based businesses will be sole proprietorships or partnerships. As such, the law sees you and your business as inseparable. If a liability claim is successfully made against you and your insurance isn't adequate, then you face losing your personal assets, including your home. It's one thing to lose money when a business fails — it's quite another to lose your family home because you failed to insure yourself adequately.
Casualty (Liability)
This covers you against claims made by others against you for injuries or damages that happen on the premises or as a result of the work you do or the products you sell. These claims might be for property damage (a customer's car is damaged while on your property), personal injury (a customer slips and falls while on your property), or product-related injury (a customer is punctured by a nail from the birdhouse that you built and sold to her).
Your homeowner's policy likely includes some liability insurance, but it may not include coverage for liability claims made as a result of business you conduct on your property. You'll need a business liability policy or endorsement/rider.
Umbrella Liability
This is added coverage against catastrophic losses or claims. In today's “sue first; ask questions later” world, you could well be facing a liability claim in the millions of dollars (a writer is sued by someone they quoted in a newspaper article, for example). An umbrella policy will upgrade your basic auto, homeowners, or business insurance policies to cover such situations.
You can reduce the cost of insurance by increasing deductibles (the point at which the insurance kicks in) or reducing your coverage. Especially in the case of liability insurance, it's wiser to increase the deductible, because reducing your overall coverage can leave you vulnerable. The point of insurance is to guard against catastrophic losses.
Industry Specific
Some home-based businesses have special needs. Lawyers, doctors, and even cosmeticians may need professional liability insurance (malpractice insurance), while horse training or boarding facilities or guide services often require specific coverages. Check with the trade association for your profession or business to determine what extra coverage you need and where to find it.
Business Interruption
As part of your business insurance package, consider insuring yourself against the economic losses that might result if something forced the business to close either temporarily or permanently. Your property insurance may cover rebuilding in case of fire, for example, but what about the income you're losing while you rebuild?
If the business policy that you're considering doesn't include this, ask your insurer how much it would cost to add it — it may be a small price to pay for the survival of your business in case of a future catastrophe.
Overhead insurance is related to this. While disability or business interruption insurance may cover income, overhead insurance covers expenses such as rent, salaries, utilities, insurance premiums, and interest payments related to the business in case you become ill or injured.
