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For the entrepreneur engaged in creating a microbusiness, insurance coverage might not be at the top of the priority list, but it should be. Protecting yourself and your assets is a fundamental part of any business plan.

Whether it’s handmade crafts, landscaping or freelance consulting, consumers with low-budget, home-based businesses need insurance coverage to provide a safety net in case of theft, accidents, lawsuits and other unexpected events.

“Many home-based business owners believe mistakenly that a homeowners (or renters) policy will protect them from all manner of misfortune,” said Linda Sherry, director of national priorities for Consumer Action. “The reality is that the typical microbusiness owner needs more coverage for adequate protection.”

Consumer Action took a close look at what additional insurance the home-based entrepreneur or microbusiness owner would need.

•  In-home or home-based business policies typically provide coverage for loss or damage to equipment and records as well as loss of income from certain unexpected events.
•  Business owner’s policies (BOPs) offer comprehensive coverage, such as liability protection for accidents that occur on or off premises, and often include medical coverage.
•  Professional liability insurance (errors and omissions) covers the cost of mistakes when advising or providing client services.

As soon as a microbusiness hires its first employee, workers’ compensation and unemployment insurance are usually required. These policies provide medical benefits and/or wage replacement when an employee is injured on the job or is fired or laid off. Coverage requirements vary widely by state.

How much insurance is enough?

Many factors affect a business’s insurance needs, including the type of work you do, where you do it and the specific items you are trying to protect, such as equipment, data, inventory, etc. Consumer Action’s research finds it is vital for small business owners to assess their needs, risks and potential liabilities. The findings and recommendations, tips and practical advice are contained in the Spring 2014 issue of Consumer Action News, the organization’s quarterly newsletter.

For more details on home-based business insurance options, see the Consumer Action News Home-based business insurance issue.

Consumer Action (www.consumer-action.org) has been a champion of underrepresented consumers nationwide since 1971. A non-profit 501(c)(3) organization, Consumer Action focuses on financial education that empowers low- and moderate-income and limited-English-speaking consumers to financially prosper. It advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.