No Coverage by chenshu


									No Coverage. So you think your homeowners policy protects your home -based business?
Think again.

By Joanna L. Ossinger
Wall Street Journal, V.CCXLVII No.24
Monday, Jan. 30, 2006, p.R4

        If you run a business out of your home, the risks can add up fast. Do you see customers?
You could be sued if someone trips on the steps. Make crafts? Your glue gun could cause a fire.
Use your garage as an office? Your inventory or equipment could be stolen.
        But the biggest risk of all is assuming that your homeowners policy will cover these
damages. Regular homeowners policies cover only a fraction of business-related claims-yet
many entrepreneurs don’t buy additional coverage, leaving them potentially exposed to huge
        Madelyn Flannagan, vice president of education and research at the Independent
Insurance Agents and Brokers of America, says a typical homeowners policy covers only about
$2,500 of on-premises business equipment, and just $250 off premises. In addition, the policy is
unlikely to contain any liability coverage for business-related accidents.
        “You have to look at your policy, but most likely, since [the liability is] related to the
business, it wouldn’t be covered,” says Robert Hunter, director of insurance at the Consumer
Federation of America in Washington.

         Take No Chances
         It’s not clear just how many home-based businesses are underinsured. But some
evidence suggests that many entrepreneurs don’t know they aren’t covered.
         For instance, a February 2004 survey conducted by International Communications
Research for the Independent Insurance Agents and Brokers group found that nearly 60% of
home-based businesses lacked insurance coverage beyond the homeowners policy. Most of the
uninsured business owners said they thought that they didn’t need insurance, that they had other
coverage or that the business was too small or didn’t carry any risk.
         Given the risks, experts advise home-based entrepreneurs to beef up their coverage by
buying business insurance. There are three general types of policies available; the best choice
depends on the size and nature of the enterprise.
         First, there are endorsements, also known as riders. These are provisions added to your
existing homeowners policy that bolster the coverage to include your business. If you opt for this
type of coverage, check whether it includes liability insurance for your business-if not, you may
need to purchase a separate liability policy.
         An endorsement usually doesn’t offer a great deal of coverage, so it’s probably best for
business with a small amount of equipment and space that don’t get visitors or deliveries at the
home. A typical endorsement might cover $5,000 of contents and $1 million of liability for about
$200 to $250 a year. That’s on top of the homeowners policy, which on average costs about $675
to $800 a year.
         An in-home business-owners policy combines coverage for the home and the business
into a single contract, eliminating duplications and gaps in coverage.
         This type of policy, which generally starts at around $100 to $150 on top of the regular
homeowners-policy costs, usually covers you for liability and loss of income. It’s a good choice
for businesses with limited risk exposure, such as crafts or accounting – but not if much of the
business is conducted outside the home, because the policy covers only household activities and
         A business-owners package policy is the most comprehensive type, and is more like a
regular commercial policy than the other tow options. It’s completely separate from the
homeowners policy, and coverage usually includes liability on and off premises, business
property, loss of income and injury.
        Larger businesses, those with high liability risk and those that stock merchandise on the
premises will probably be best off with this package policy. That includes home-based day care,
bakeries and any venture that involves a large amount of off-site work. This option could run
about $250 to $500 a year, but may cost more depending on how risky your business is. Ventures
such as daycare and doctors’ offices, for example, have large amounts of liability risk.

         Making Plans
         Ms. Flannagan of the insurance agents association says the agent who provides coverage
for your home is the best person to ask about additional coverage. Your agent will be familiar
with your current level of coverage and is therefore in the best position to determine what else
you may need.
         Ideally, though, “you really want to check with your [insurance] agent in advance of
starting your business,” she says.
         Full disclosure and planning ahead will help the agent determine exactly what your
business’s needs are. “you need to tell the agent everything” about what the business will be
doing, says Andy Thompson, an agent with Thompson Group in Parker City, Ind.
         For instance, the agent will need to know how much property will be dedicated to the
business, and whether it will be in your home or in a separate structure, which can affect what
type of policy you need. If your business is located in a separate building such as a detached
garage, a homeowners policy may exclude coverage entirely.
         Mr. Thompson also suggests that you bring your agent a copy of your business plan.
This will help identify, among other things, your exposure to liability. A baker could be sued if
someone fell ill after eating a cookie; a consultant could be sued if a piece of advice landed a
client in hot water with regulators. A daycare operation could be targeted if a child had a medical
         And there are incidental liability risks as well. Someone who wants to offer piano lesions
in the home could be held liable if a student were bitten by a family pet, or if a delivery person
slipped on the sidewall coming up to the house.
         Product-liability coverage for products, and workmanship-liability coverage for services,
will insure you against those risks. The costs vary widely depending on the type of business and
your level of risk.
         “the liability exposure is always the greatest exposure somebody has,” says Noel Edsall,
director of product development for MetLife Inc. “When in doubt, buy the extra coverage.”

         Incidental Risks
         Another often-overlooked insurance item: Your personal auto policy is unlikely to cover
claims from such mishaps as car accidents or break-ins if your’re using the vehicle for business
purposes. A commercial auto policy will close that gap in coverage. The cost varies widely
depending on how heavily you use the car: If all you do is occasionally drive to see clients, you
probably won’t pay much more than you would for a personal policy. On the other hand, if you
have a taxi business and ferry around customers, you’ll probably pay considerably more than a
personal policy.
         Moreover, if you have employees, most states require you to carry workers’
compensation insurance. Scott Hauge of CAL Insurance & Associates in San Francisco says
many business owners think that by submitting the Internal Revenue Service’s 1099 form for
their employees – usually reserved for independent contractors – they can avoid having to pay
workers’ comp. But, he says, if you pay someone a regular salary and they’re working “at your
direction,” you’ll probably need the insurance.
        Costs vary widely, depending on the number of employees, the nature of the work and
your state regulations. Indeed, workers’ comp rules vary by state, more so than many other types
of property or casualty insurance. So make sure the policy you choose fulfills the proper

By Joanna L. Ossinger
Wall Street Journal V.CCXLVII No.24
Monday, Jan. 30, 2006

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