From the May 1998 issue of Startups

There are about 18 million homebased businesses in the United States. But some 60 percent of them are gambling with the future of their businesses--and most don't even know it. These homebased entrepreneurs don't have enough business insurance coverage, according to the Independent Insurance Agents of America Inc. (IIAA), an Alexandria, Virginia-based trade group.

Many entrepreneurs mistakenly believe they're covered by their homeowners insurance, but most homeowners policies limit loss of business property to $2,500, don't cover losses away from the home, and exclude liability coverage for business-related activity. Consider these risks:

  • A graphic artist can easily have $20,000 in computer equipment and software in the home.
  • Sales representatives often take a laptop and cell phone on the road to meet with customers.
  • A client could slip and fall during an appointment at a homebased bookkeeping service.
  • A homebased manufacturer could be held liable if his or her product injured someone.

When Toni Korby started her home furnishings design firm in her Centreville, Virginia, home, she didn't think she needed extra insurance because she had little equipment, no inventory and no customers visiting her home. But worries about liability caused Korby to rethink her needs.


Jan Norman is a freelance writer who specializes in small-business issues. She can be reached at jnsmallbiz@aol.com

Change Of Heart

Janie Williams couldn't find a homebased business policy when she started a tax and bookkeeping firm in her Long Beach, California, home five years ago. "I called lots of insurance companies--even friends in the business, and everyone said `no,' " Williams recalls. "Then I leased a new computer, and the leasing company wanted me to have insurance. My homeowners insurance carrier has had a change of heart and now covers my homebased business for about $45 per year.'

Many insurance companies still shy away from businesses that aren't in commercial locations, but a growing number now actively woos this market, according to the IIAA.

Assess Your Need

Ask a lot of questions to determine the amount and type of insurance your business needs, says Amy Gergely of the IIAA. Start with these:

  • What inventory do you have at home? How much equipment? How much would it cost to replace them?
  • How many customers come to your home?
  • What would happen to your business if a disaster forced you out of your home temporarily?

Read the fine print on your homeowners policy to find out the restrictions on business property and activity in the home. "Get quotes from a number of companies," says Gergely. "The average independent insurance agent represents eight companies."

Types Of Coverage

Many homebased business owners can get an endorsement, or added coverage, on their existing policies.

Hanover Insurance Co., based in Worcester, Massachusetts, recently introduced The Home Entrepreneur Program, which covers its homeowners policyholders' homebased businesses in 15 states. For an extra $225 annually, the endorsement covers business property up to half the total policy value, $500,000 general liability and business interruption for up to a year.

CNA, based in Chicago, offers a HomeWork endorsement for homeowners policyholders in 33 states. For an extra $175 per year, CNA offers many of the same features Hanover does, plus product liability coverage for items made or sold in the home and $10,000 in accounts receivable coverage.

If your insurance company doesn't offer a homebased business endorsement, look for a separate business owners policy, such as the In-Home Business Policy offered by RLI Insurance Co. in Peoria, Illinois. It provides up to $50,000 in business property coverage, general liability coverage up to $1 million, loss of business income replacement for up to a year, and up to $5,000 in medical payments to customers injured at your homebased business. Premiums start at $150 per year.

Many homebased business owners just want insurance for business equipment. Safeware, The Insurance Agency Inc., in Columbus, Ohio, specializes in such policies. For $69 per year, Safeware covers $5,000 in hardware, software and peripherals for power surges, theft, fire, natural disasters and even accidental damage.

As homebased business continues to grow, homebased business insurance will likely become more widely available and affordable. Don't wait until it's too late to insure your business. You've spent a lot of time, money and effort building your new venture. Shouldn't you spend a little time, money and effort to protect it?

Cover Your Assets

Just because you have insurance doesn't mean you want to use it. Take steps to protect yourself from losses. "We ask our clients to do common-sense things like installing surge protectors and uninterruptable power supplies for their computers,' says Brian Haase of Safeware, The Insurance Agency Inc., in Columbus, Ohio. Here are some other steps you can take:

Crime and disaster prevention:

  • Install smoke detectors, fire extinguishers and deadbolt locks.
  • Install motion-sensitive outside lights.
  • Keep your office equipment out of view from the street.
  • Keep money and important documents in a fireproof safe.
  • *Develop a disaster recovery plan to minimize losses and return to normal operations quickly.

Accident prevention:

  • Make sure electrical circuits aren't overloaded.
  • Keep stairs and walkways free of ice and debris.
  • Set and enforce safety rules.
  • Practice preventive maintenance on all equipment.

Liability prevention:

  • Make clearly labeled backups of important documents and store them at another location.
  • Don't accept work assignments you aren't qualified to perform or make promises you can't keep.
  • Read the fine print in contracts to avoid assuming someone else's liability. Have an attorney review contracts.

Contact Sources

Hanover Insurance Co., (508) 855-2105, jheffernon@allmerica.com

Independent Insurance Agents of America Inc., (800) 221-7917, http://www.independentagent.com

Toni Korby, c/o Antonia Korby Design Inc., (703) 502-9483

RLI Insurance Co., (800) 526-1754, blundber@rlicorp.com

Safeware, The Insurance Agency Inc., (800) 800-1492, ext. 2021

Janie Williams, c/o Janie Williams & Associates, (562) 430-8240, fax: (562) 598-0315