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How to Insure Your Home Office Against Casualties By Mark Landsbaum |
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Y our home office bursts at the seams with all the tools common for operating a business -- telephone, computer, furniture, perhaps even product inventory. But odds are you don’t own one of the most basic necessities: adequate business insurance. A survey by the Independent Insurance Agents of America Inc., an Alexandria, Va.-based trade group, shows that an alarming 60 percent of the estimated 18 million U.S. home-based businesses don’t carry enough insurance coverage to replace lost property. Yet there’s no need to play fast and loose with your business assets. The unprecedented growth of home businesses since the 1980s has generated a corresponding increase in the variety of insurance policies ready to meet the burgeoning demand for coverage. Riders to homeowner’s insurance, business owner’s packages and combination in-home business owners’ policies now offer protection in case of common calamities. Adequate insurance for your home office can save time and expense later, to say nothing of preventing plenty of grief. The right coverage might even keep your business alive if disaster strikes, says David L. Tibbals, an Atlanta, Ga.-based risk management consultant who troubleshoots policies for business clients. “One of the largest single causes of business failure in this country is inadequate insurance protection.” Here’s how you can prepare for potential losses and reduce the risks to your business. Homeowner’s Insurance Not Enough The number one mistake home-based entrepreneurs make about property insurance is assuming that homeowner’s policies provide adequate coverage for business losses. More often than not, they don’t. For example, many homeowner’s policies insure computer equipment, but restrict coverage to only $2,500. Some restrict coverage to $250 when equipment -- like a box of carpenter’s tools -- is damaged or lost away from the home office. For all but the most minimally equipped home businesses, that’s unlikely to be enough. Sometimes equipment isn’t covered at all, such as when it’s used away from home offices. Furnishings, supplies and countless other ancillary equipment found in home offices may be specifically excluded from your homeowner’s policy altogether -- simply because they’re used in business-related activities. Your first step toward adequate insurance protection is to determine what your homeowner’s policy already covers and the limits of that coverage. NASE Member and Internet Web page designer Ann Prim determined the value of her computer equipment significantly exceeded the meager limit of her homeowner’s policy. To protect her investment, Prim added a rider to her existing homeowner’s policy. “The place I was living in Boston was a high crime area so that was my immediate motivation,” says Prim, who has since moved her home business, Uta Z Design Group, to Minneapolis, Minn. “These are the tools of my trade. If I lose them even for a week, that hurts me quite a lot.” Types of Coverage The type of coverage you choose determines how much reimbursement you’ll receive should you suffer a loss. For instance, Prim opted to insure her older, more expendable computer equipment at depreciated value. But she insured computer equipment less than a year old for full replacement value. Your basic coverage options include: 2. “Replacement coverage” covers the cost to replace an item without deducting depreciation. Insurance pays to replace your $2,500 computer with a similar computer, for example. 3. A third option is an “agreed amount.” An appraiser determines an item’s value, and you and your insurer agree on the amount that you will be paid if the property is destroyed or stolen. Along with these options, you can pay to protect against time as well as loss by purchasing inflation coverage, which automatically increases the value of your coverage to keep up with the cost of living. Insurance coverage is only as good as it is accurate. Take a detailed inventory of all business-related property and determine each item’s value. You may not feel it necessary to insure every paper clip and stack of magazines, but by reviewing even the smallest item, you’ll most likely list some property that previously escaped coverage. Better to know now than after a loss. Once you identify every asset, rank what is most important and what is less vital. Then choose how best to insure it. If your property inventory changes often, you may need to review your coverage frequently. Prim regularly buys new computer equipment for her design business. Consequently, she updates her coverage about every four months to reflect the changes. Policy Options Where there was once a dearth, now a variety of policies extend coverage to potential home-office catastrophes. Your challenge is finding the policy, or combination of policies, that provide the extent of coverage you need. Here’s an overview of your options. 1. Check first with your homeowner’s insurance carrier to see if you can add an endorsement or rider to your existing policy. The Independent Insurance Agents of America point out, however, that endorsements to standard homeowner’s policies typically don’t provide many forms of coverage, such as loss of printed or computer business data, loss of income, loss against crime and liability coverage. 2. Another option is separate coverage through a “business owner’s package” policy (BOP). This policy generally includes not only basic property coverage, but also frequently adds liability insurance for protection against work-related injuries at and away from the home office. Some carriers also offer BOPs with profit-protection coverage, which can maintain your level of income for up to a year, including extra expenses if catastrophe strikes. 3. A third alternative is a combined in-home business owners’ policy. These policies eliminate duplicate coverage and gaps in coverage that may occur if you choose both homeowner’s and BOP policies. Specialized Coverage The nature of your home business may warrant specialized coverage. It runs the gamut -- from common liability to coverage for power failures or earthquakes. Some carriers even offer insurance for business activities conducted on the Internet. Not all carriers offer all options, but shopping around can turn up something for nearly every need. Although Prim feels she has little exposure to injuries occurring at her home office, NASE Member Anthony Shupenko believes liability coverage is every bit as important to his business as property coverage. He owns Shupenko Engineering Inc. in Garfield, New Jersey, and conducts pre-purchase building inspections. “I’m out on the road a lot and do inspections of property for people. I occasionally have people in,” Shupenko explains. “It’s possible I can damage something, like break a window. It covers me away and at my office.” For the home business that rarely entertains visitors, the risk of injury at your office is not as great, of course. But even a Fed Ex delivery person can stumble on wet steps. And if he’s delivering work-related material to your home office, it’s good to know you’re protected by liability insurance. The Cost of Protection Depending on how much property you insure, home-based business premiums can be reasonably affordable. As with all business purchases, shop for the best deal. Shupenko insures his office equipment and the tools he uses away from the office, as well as gets adequate liability coverage, for about $350 annually. This year the insurance paid for itself when $1,200 worth of tools were stolen out of his vehicle at a job site, Shupenko says. Even after a $500 deductible, he came out ahead. Finally, while you’re pricing premiums and comparing coverage, be sure to ask about discounts. Many carriers reduce premiums for home offices that install smoke detectors, security systems and other risk-reducing measures.
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The experts offer these tips for protecting your home-office property and reducing the chance you’ll ever need to submit an insurance claim. Implementing these preventive measures also may lower your premiums. Outfit computers and other electronic equipment with surge protectors and uninterruptible power supplies. Install deadbolt locks, smoke detectors, fire extinguishers and security lighting. Post signs that a security system is installed. Place expensive office equipment where it can’t be viewed through a window. Label, date and back up your computer files regularly. Store those and other important documents in a fireproof safe. Practice routine, preventive maintenance on all equipment. |
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