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Small Business | HOME OFFICE / LINDA STERN

Homeowners Policy Probably Not Enough to Protect Assets

May 07, 1996|LINDA STERN

Here's a warning for everyone who left corporate America for the challenge of running their own home-based businesses:

Check your homeowners policy, because running a business out of your house exposes you to more than kids crying into the telephone or fighting you for the computer. It exposes you to serious liability problems that may not be covered by your existing insurance policy.

If, for example, the Federal Express guy falls on your walk while delivering a package from your client, you could be held liable for his injuries, but your insurance company could beg off.

Or a thief could steal your new $5,000 computer system, and you'd discover you aren't covered for it. If that system had the names of all your clients locked away in it, and you were unable to collect the money they owed you, who would pay your bills?

If fire destroyed your basement inventory of wood carvings, not only wouldn't the carvings be covered, you'd have no hope of replacing the income you might have made by selling them.

In other words, you probably need more insurance.

The good news is that the property-casualty industry (the companies that sell homeowners and renters insurance) have discovered home-based businesses and crafted some entirely affordable products to fill those gaps.

According to Sean Mooney, an insurance industry spokesman considered an expert in business coverage, there are four tiers of protection for home-based business owners to consider.

The first tier is the basic homeowners policy, which is probably already costing you $450 or so a year. This typically covers your computer equipment up to $2,500 but includes no business liability coverage. You may be able to get by on this if you don't use your home to receive clients or business deliveries--if you use a post office box or mail box service, for example.

Tier two gets you a lot of extra coverage for a little more money. You can buy riders to your regular coverage for as little as $15 or $20 a year. For example, you can get riders that cover your business property or computer equipment for up to $10,000 from State Farm. You're still not covered for the guy who falls down.

By tier three, you are into a separate business policy, but the new home-based policies from companies such as State Farm and CNA can be had for less than $200 a year and include plenty of coverage. Typically, they indemnify you for up to about $300,000 for the falling messenger.

They may offer income continuation for up to 12 months, if your business is knocked out of commission because of fire, flood or theft. And they'll cover up to $10,000 of business property.

Also in tier three, you may find a policy that offers limited business liability. That gives you coverage if a competitor or former customer sues you for libel, defamation or slander. If you want more coverage, say $1 million for the falling messenger, you need to buy an umbrella liability policy to cover your regular policy.

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Tier four is a basic business owners policy. They can start at $500 and up, include greater protections for liability, expanded business continuation coverage and business liability coverage.

A bona fide business owners policy is what you need if you operate in more than one location or do any manufacturing or otherwise hazardous kind of work.

Where do you go for the best business coverage? Try the company that already insures your home, but ask a few others too. And call your professional society or trade group; it may offer a package specifically aimed at the kind of work you do.

Linda Stern can be reached via e-mail at 72160.1546@compuserve.com or by mail care of Reuters, Suite 410, 1333 H St., NW, Washington, DC 20005.

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