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Under-protected home offices
gain new insurance choices
By Pat
Curry • Bankrate.com
 You've
got the garage cleared out, and your home office up and running.
The workstation needed some assembly, but you did just fine. One
afternoon, a customer comes by to look at some samples, trips over
the computer boxes and falls against the shelves holding your inventory.
The shelves fall and your entire spring line is trashed.
Think quick. Will your homeowners insurance
cover this? Don't bet on it.
"Some people have a business in their home,
say a beauty shop in a basement, a garage, whatever," says Patrick
Musick, assistant vice president of property/casualty insurance
for the Alliance
of American Insurers, a national trade group representing more
than 300 insurers. "One of the early things to point out is that
if there's a separate structure used solely for business, that's
not covered under a homeowners policy."
Disasters can be costly
Now try this scenario on for size:
You build a deck for a client. The work is done,
the check has cleared, the client's happy. Two weeks later, the
client has a party. A guest leans on the railing, it gives way and
the guest falls and breaks an arm. You've got a $1 million umbrella
liability rider on your homeowners insurance policy.
Are you covered? Not a chance.
"Unless your underlying policy is specifically
endorsed for business, the umbrella won't respond," says John Grzyszek,
manager of the home business program at The Hartford
Financial Services Group. "That's where the vulnerability starts
to fester. With all the things you look at when you start a business,
insurance is the last thing you think of. The misconception that
we're seeing is the homeowner thinks the homeowners policy covers
them."
Plenty of small office/home office business
people are in the same boat. A 1999 study from the Independent
Insurance Agents of America estimates that at least 60 percent
of home businesses are not properly insured, and more than 70 percent
of the underinsured thought they were covered by their homeowner's
insurance or didn't know they needed additional insurance.
With more than 18 million people running a business
from home, that's a lot of underinsured people.
Fortunately, insurance companies have begun
to respond by courting home-based business owners with broad, comprehensive
packages. Starting at about the annual cost of basic Internet access,
a home-based business can be covered for everything from loss of
income if the house burns down to off-premises liability, which
kicks in when the lawn service's mower scratches a client's precious
Mercedes.
Insurance that's easy to
get
Today, small office/home office (SOHO) business insurance policies
are fairly easy to obtain, depending on your business -- don't bother
looking if you're running a gun shop out of the house -- and in
the same price range as your homeowners insurance. That's good,
because there's a lot in a business that needs coverage.
"There have been some homeowners policies that
cover businesses that operated out of a home," says Scot McCartney,
co-owner of the McCartney Agency in Ardsley, N.Y. "But when you
have a full-blown business, it has to be treated separately."
As a business grows, so do its insurance needs.
With a bigger business, McCartney says, "You have a lot of other
exposures to think about -- you have sales, you might have an employee,
you might have people coming and going. You're physically selling
products, so there could be product liability. More and more insurance
companies are taking a serious look at that."
McCartney, who also serves as a spokesman for
the IIAA, says every SOHO business needs to insure:
- Contents -- your inventory or stock
and your equipment.
- Liability -- both on- and off-premises.
"Without those, you can be put out of business."
- Business interruption -- "If their
office is shut down for a fire and they can't use their equipment,
they may need money to set up a new location."
- Valuable papers, money and securities.
Are there certain kinds of insurance a SOHO
could do without?
"If you think you could get up and running after
a loss -- say, the house burns down but you can get a computer anywhere
-- business interruption insurance may not be a big deal," Musick
says. "If you back up your data every night and go to the safe-deposit
box, you probably don't need valuable papers insurance."
The deal for BOP
Many companies will qualify for a standard policy quaintly known
as BOP, short for Business Owners Policy. It covers the vitals,
plus accounts receivable, business income and extra expense, pollution
clean-up, outdoor signs and fire/legal liability.
For about $500 a year, the business owner gets
"an amazing amount of coverage," McCartney says. The Hartford's
basic coverage starts at $200 to $250 a year, and covers business
liability, loss of income and extra expenses, business personal
property both on and off premises, valuable papers and records,
accounts receivables, and equipment breakdown. As with any insurance,
changes in deductibles and additional levels of coverage will shift
the premiums up or down.
To get quotes for a policy, check with the insurance
agent who handles your homeowners insurance, or look for a professional
association package. The Hartford has an alliance with AARP
to offer its policy, but it also can be bought through an independent
agent. Check The Hartford's Web site for a list of agents in your
area.
Protecting your data,
too
A related, and specialized form of SOHO insurance, looks specifically
at your computer equipment. In the world of insurance, you cover
the biggest risk first, and for most home-based businesses, that's
the computer and the critical files and programs locked inside the
beige box. On most homeowner's policies, the coverage limits for
computers won't even touch replacing a system, much less the expense
and potential loss of income if you lose data.
PromiseMark
currently offers a virus service plan wrapped around an insurance
policy designed specifically for small businesses. For $23.88 a
year, home-based businesses get three months of Symantec's
Norton Anti-Virus software, 911 alerts, and 24/7 technical support.
The most important part is that if a nasty does get through and
fries your system, they repair it for free.
Right now, PromiseMark's product line is limited
to the virus protection. Next up is a data-loss policy, which has
perhaps the most valuable application, since virtually every computer
user has a horror story about losing a critical file -- including
Bernie Brenner, president and CEO of PromiseMark.
"When I was out raising capital, I lost my business
plan," he says. "It was a 50-pager. It was 'Oh, my God.' "
Hacker insurance is on its way, too -- something
to think about as more SOHOs go to DSL or cable modems that connect
them to the Net around the clock.
Ohio-based Safeware
also offers computer insurance; for some time, they were the only
company that covered software in addition to hardware and would
pay claims on systems damaged by power surges and lightning strikes.
Premiums are based on the total value of your system -- hardware,
software and peripherals -- and run from $49 to $159 a year.
Pat Curry is a freelance
writer based in Georgia
If you'd like to make a comment on this
story,
e-mail bankrate editors.
-- Posted: Aug.
4, 2000
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