Q & A : Home Business May Need Separate Insurance
Long before the information superhighway was much more than a two-lane street, Americans had begun to fuel a trend of telecommuting and home-based businesses. In 1984, some 6 million individuals were working from home, either full- or part-time. Now, however, thanks partly to vast gains in technology and electronic communication, 45 million people work from home--and their ranks are rising by tens of millions each year.
Something few telecommuters and home-based business owners realize, though, is that they may be exposing themselves to serious risks that are not likely to be covered by any of their standard insurance policies.
“Most people just assume that their homeowners insurance covers” a home-based business as well as the home, says Rudy Lewis, president of the National Assn. of Home Based Businesses.
But, in fact, most policies specifically exclude coverage for business equipment and liability. That means that if you have computers, printers, fax machines, copiers or valuable business books, a fire or theft could wipe out all you have.
Worse, if you have customers or delivery people coming to your home office, you could face uncomfortable legal liability as well. If a customer slips on the oil in your driveway, for example, that person could sue for damages. If the customer was at your house for business, your homeowners insurance policy probably would not pay off.
“It [business liability] isn’t covered,” says Sean Mooney, senior economist at the Insurance Information Institute in New York. “This is a big exclusion that’s becoming more important these days as more people do business in their homes.”
Here’s a look at specifics.
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Q: Do all homeowners insurance policies exclude reimbursement for losses stemming from the business use of your property?
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A: No. Although “business and commercial use” exclusions are fairly common, it’s possible that your policy doesn’t limit coverage that way. You need to check the language in your policy to find out for sure. If you have trouble deciphering the document, call your insurance agent and ask.
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Q: I have a lot of expensive office equipment that I probably ought to insure. Can I buy a “rider” to cover the office, as I can cover jewelry?
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A: Sometimes. However, home business riders usually cover both liability and property in one package. As a result, your ability to buy a rider may well depend on what kind of business you are in. If you are an auto mechanic or a hairdresser, you probably won’t be able to get a rider simply because your business involves too much foot traffic. If you manufacture dangerous equipment, you could be precluded from buying a rider too. You can still purchase insurance, mind you. But you’d probably have to buy a more expensive commercial or small business policy rather than a simple rider to your homeowners insurance.
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Q: Speaking of expense, what does commercial insurance--or a business use rider--cost?
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A: It varies, but most experts maintain that the cost of a rider is likely to amount to about 15% to 20% of the cost of your overall homeowner’s policy. In other words, if you were paying $500 now, the business rider might add $100 to the premium, so you pay a total of $600.
However, if you are forced to buy commercial insurance, the cost can be substantially more, says David Hanania, president of the Home Business Institute in White Plains, N.Y.
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Q: I telecommute and my employer provides all my office equipment. Do I need to worry?
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A: Probably not. If you don’t regularly meet customers at home--or have business documents delivered--your liability exposure is fairly minimal. In addition, your office equipment is probably covered under the company’s business policy. However, you should ask your employer to make sure you would not be held responsible for replacing the equipment should it be stolen or destroyed in a natural disaster.
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Q: I’ve tried to find a home-business policy before and have had no luck. Who actually writes these policies?
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A: It’s true that only a relatively small number of insurance companies offer home business riders, Hanania says. However, numerous companies are considering adding them because of the rapid growth in the home-based business market. Currently, however, Cigna, Continental and Aetna Life and Casualty all offer riders. The Home Business Institute also offers a policy. But call your own insurer first. The coverage may be less expensive if you can simply tack it on to your current homeowners policy.
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Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or send a message to kristof@news.latimes.com on the Internet.
