Don't Leave Your Home Office Uncovered

Many people who work from the safety of their own homes are not as safe as they think--at least when it comes to insurance risks. Failure to obtain proper home-office protection can be costly if you discover after the fact that your basic homeowner's policy doesn't cover business equipment destroyed in a fire or injuries to a client who trips on your stoop. You may also be chancing unreimbursable losses if you use the family car for work and don't pay a business-use premium.

Some 11 million Americans work at home. To do their jobs, they often invest thousands of dollars in computers, software, fax machines, copiers, and the like. Still, while five out of six buy some form of personal health insurance, nearly half carry no coverage for business-related property and liability hazards, according to home-office consultant Paul Edwards, who is based in Santa Monica, Calif.

BIG MISTAKES. There are several explanations. Sometimes at-home workers decide their risks are too small to justify the added insurance costs. They might also rank insurance at the bottom of their priority list of expenses." Insurance does not bring an immediate perceived benefit," Edwards says. "Most people would rather spend money on something that will bring in business or improve productivity."

But beware of mistaken assumptions. Perhaps the most common is that existing insurance already protects everything. People also may not realize that it's often simple--and relatively inexpensive--to fill in the gaps.

That's why it's important to review your coverage with an insurance agent if you work from a home office or are setting one up. You might learn that for as little as $20 a year extra, you can extend your basic homeowner's or apartment-dweller's plan to cover certain business risks.

With a State Farm Insurance homeowner's policy, for instance, a $20 rider will protect up to $5,000 of office property in the home and $1,000 away from the premises. Otherwise, the regular limit on business property is $200, an amount that would barely replace a tape recorder. What's more, the option extends liability coverage to anyone who gets injured on a business call to your home--such as a client or delivery person. State Farm's liability limit is $300,000, although some insurers go higher.

MODEST LIMITS. The so-called option for incidental business isn't available for more elaborate facilities such as a dentist's office. And the liability portion does not protect a lawyer or doctor, say, from the kind of professional liability that arises from malpractice suits. "We are somewhat restrictive in the types of operations we allow," explains David Speers, general underwriting superintendent for State Farm. "A one-chair beauty shop, a leatherwork studio, and a word processing service would qualify, but computer programmers and engineers have coverage needs much more comprehensive than this endorsement can provide."

Coverage needs that exceed the modest limits of a homeowner's plan would push you into a small-business policy. Basic small-business insurance, which might include liability, business interruption, and errors-and-omissions protection, would run at least $500 a year for about $1 million in liability and $50,000 in property protection.

If your home office is loaded with expensive computer equipment and software, you may want to purchase a separate floater just to cover these items. Safeware, an agency based in Columbus, Ohio, sells a policy for $49 to $129 a year (with a $50 deductible) that insures personal computers and software--regardless of use and location--for $2,000 to $14,000. You can also buy coverage for data losses caused by power surges or other problems, but it's much more expensive. Says David Johnston, Safeware's chief executive officer: "The best protection against loss of data is to make backup disks."

At-home workers might also overlook auto insurance. If you occasionally use your personal car to make deliveries and merchandise is stolen from the trunk, or if you get into an accident as you're driving to a customer call, your carrier may not reimburse you if you haven't insured the vehicle for business use. Such coverage would add several hundred dollars a year to your regular bill.

Not everybody who works at home is self-employed, of course. This can lead to other complications. Technology research firm Link Resources learned that the hard way when a burglar broke into senior research associate Carol D'Agostino's home office. The computer, printer, modem, and answering machine were stolen. Although D'Agostino's homeowner's policy insured up to $2,500 of business equipment, it didn't cover the loss. The reason: The property belonged to her employer, not to her. Link ultimately had to add equipment for D'Agostino to its own plan. The story shows that reviewing your coverage before disaster strikes is the best policy for a home office.

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