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HOMEOWNERS INSURANCE
Is Your Home Office Covered?
by Kimberly Lankford Scott Szeliga didn't think much about insurance when he started renovating homes several years ago. The Highland, Md., man had a policy to cover liability on the job and figured his homeowners coverage would pay if anything happened at the office -- which, after all, was merely a room in his house with basic furniture and equipment. It never crossed his mind that he needed special protection. That was a mistake, which Szeliga learned as his home office grew into a home suite -- an entire wing added to his house that contains six computers, a shop area and space for four employees who support 12 others in the field. He now covers it all with a full-fledged business policy. But in the early days, he was unaware of the risks he was running.
Like many people with home offices, Szeliga had no idea how little would be covered under his homeowners policy. In fact, the minute you do business in your home, parts of your insurance coverage can drop by tens of thousands of dollars.
While your homeowners policy may, for example, cover $60,000 in personal property, the limit for business property frequently drops to a skimpy $2,500. If a fire destroys your home office and the $15,000 worth of computers and office furniture in it, the insurance company may limit your recovery to just $2,500 if it discovers the room was used for business. And that low ceiling may still stand even if you have a rider on your policy that raises the coverage for personal computers, because it may not apply if you use those machines for a business. Worse, most homeowners policies cover just $250 of business property that is stolen or destroyed when you're away from home -- a laughably low amount if your laptop is stolen and has to be replaced.
But the most unwelcome surprise concerns your liability coverage. You may have a $1-million limit on your homeowners policy, but your coverage level usually falls to zero for liability related to your business -- if, say, a client falls down your stairs. "I didn't realize all the things that aren't covered," confesses Szeliga.
Even if you have a modest home office -- with a basic computer system, fax machine, scanner, telephone, books and office furniture -- you could have thousands of dollars worth of property that is barely covered by your homeowners insurance. "As soon as you start to make money in your home, you run the risk of your insurer denying the claim because it's business property," warns Lawrence Wentz, an independent insurance agent in Horsham, Pa.
Home-based consultants, graphic designers, computer programmers and anyone else with a traditional office are at risk. But you could also run into problems if you do most of your work at outside job sites but maintain an office in your basement, as do many contractors, plumbers, photographers and electricians.
Wentz insures a clown (what if someone trips over those big, floppy shoes?) and a photographer who videotapes high school football games (and takes a lot of expensive equipment with him).
The protection you need
The cheapest way to increase your business coverage is to get a home-business endorsement added to your homeowners insurance policy. In most cases, for less than $100 a year you can raise your business-property and liability limits to the same level as the rest of your homeowners coverage. In other words, that will buy you the coverage you may mistakenly think you already have.
That strategy works for Sarah Shelley, who recently launched an arts-administration business after years of working as the executive director of a dance festival in San Francisco. She works out of a small office in her downtown apartment, with little more than a computer and printer. To protect herself, she pays $500 a year for a renters policy and an extra $100 for $60,000 worth of business-property and $500,000 of liability coverage.
"I was surprised it was so affordable," she says, echoing the sentiments of many small-business owners who steer clear of adequate insurance for fear of its cost.
Business policy
Although such add-ons are economically sufficient for modest offices such as Shelley's, they can leave big gaps if you have more-complicated home-office insurance needs.
As your business and the risks associated with it grow, it can become cost-effective to get a business-owners policy. The Hartford offers one specifically tailored to home-based businesses, with annual premiums ranging from $150 to $300. Other policies cover any kind of business -- in your home or in a separate space -- and usually cost $200 to $1,000, depending on what's being covered. For example, Wentz's clown client pays $200 a year for a policy that provides $5,000 in personal-property and $300,000 in liability coverage.
The best place to start shopping for a policy is the company that issues your homeowners or renters policy. You may get a discount if your business policy is with the same firm. That can also simplify things if it's tough to distinguish between home and business property when it's time to make a claim. "It eliminates an argument about who's responsible for what," says Mike McCartin, an independent insurance agent in College Park, Md.
Business-owners policies cover business property and liability -- as you'd get with an extension on your homeowners policy. But they also cover such contingencies as damage to your equipment caused by power surges and loss of income if you can't do your job because your equipment broke down or your office was destroyed. Some policies cover your valuable papers (and the cost to reproduce them), mechanical breakdowns and employee malfeasance.
Business policies' computer riders may cover damage to a computer and lost business caused by a hacker attack or virus, as well as the cost to buy new software, reprogram your computer and re-create data. (Such a rider is often more cost-effective than stand-alone hacker insurance, which tends to cost $30 to $40 per year for just that limited coverage.)
Grow with your business
McCartin advises his clients that "insurance for your home business should be no different than if you were renting an office down the street."
Scott Szeliga, the Maryland home renovator, followed that advice and bought a separate business policy. Even though his office is still in his home, it's grown so big that he'd have a hard time adequately providing the proper coverage with an extension to his homeowners policy.
Because of the size of his business, his policy tends to be much more expensive than most. He pays $2,000 a year for $1 million in liability coverage, and another $1,500 for about $180,000 in property coverage.
His policy recently came in handy. A truck hit a telephone pole near Szeliga's home, and the accident destroyed his $13,000 telephone system. Insurance paid to replace the phone system.
What's not covered
Even the most-comprehensive business policies don't cover two important risks: workers' compensation and business liability (often known as errors and omissions or malpractice).
If anyone works for you as an employee, your state may require you to provide workers'-compensation insurance, which covers medical bills and lost wages for an employee hurt on the job. The cost is usually based on the size of your payroll, with minimum premiums of $350 to $500 a year. Ask your insurance agent about the requirements where you live.
A business policy will cover liability in the course of your business -- say, if someone trips over your tools. But your policy won't cover liability caused by the results of your work -- if, for example, the porch you build falls down and hurts people.
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