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Being self-employed has its benefits: Flexible hours, autonomy, working within spitting distance of the fridge. But setting up shop in your home also brings along a host of new concerns: Keeping that HST squirrelled away, organizing your expense receipts, disciplining yourself to stay away from the fridge between coffee breaks.

I recently discovered another aspect of running your own business that requires extra attention – home insurance. According to the Insurance Bureau of Canada (IBC), anyone running a business out of their home needs to have coverage that is specific to that business – either an extension of their regular policy, or a separate business policy.

Lindsay Olson, IBC's vice-president for British Columbia, Saskatchewan and Manitoba, reported on the IBC website that 39 per cent of Canadians operating a small business out of their home say they don't have business-specific insurance and that "this situation could have disastrous results for these entrepreneurs."

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She gives as an example an independent, home-based retail products distributor. If that business owner was out delivering orders and someone broke into their home or car and stole their products, they would not be covered under their regular home insurance policy. "Because the product is related to a business, and you have not disclosed to your insurer that you are running a business from your home, your home or tenant's insurance policy will not cover the loss," she writes.

That makes sense if you are a small business owner with a tangible product – be it artisanal beef jerky or custom motorcycle gear – but you still might be at risk even if you don't carry inventory. Ms. Olson gives another example: a courier who comes to your home to deliver business documents on an icy day. If he or she slips and falls on your doorstep, suffers an injury and decides to sue, the liability portion of your home policy won't cover you.

"The injury was the direct result of an activity related to your business, therefore it is not covered under your personal home insurance policy," Ms. Olson says. "But that does not relieve you of the responsibility to compensate the injured courier. He or she has the legal right to pursue compensation through the courts. Without proper business liability insurance, you could be ruined financially if the courts find you legally liable for the courier's injuries."

If there was a fire in your home that destroyed items related to your business – your products, computer equipment, office furniture – none of it would be covered under your home insurance policy, Ms. Olson says. And that's not the worst of it.

"What is more, it's likely that if you have not disclosed the existence of the home-based business to your insurance company, your home insurance policy will be voided and none of your loss will be covered," Ms. Olson says. "Is it worth it? What you think you're saving by not paying for an additional insurance policy is nothing compared to what you stand to lose."

If you're a home-based small business owner and have any concerns that your home insurance policy might not provide all the necessary coverage, it's worth a call to your representative to see if you need to upgrade.

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