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Protect And Preserve

How do you protect yourself from liability if someone gets hurt using your product? Our Legal Expert reviews your insurance options.

Opinions expressed by Entrepreneur contributors are their own.

Q: I want to start a small homebased manufacturing business. I have cutting equipment, and I've already sold a few units. I don't want to get sued if someone gets hurt using the product. I don't own a home, but I rent a small place on my father's property. Is there some type of renter's insurance we can obtain? How can I best protect myself from liability?

A: Even though you're not a homeowner, you can obtain renter's insurance to protect your property. A renter's policy, like a homeowner's policy, provides liability coverage as well as coverage for your personal and household possessions. Get a policy that covers legal and court costs, because even with a weak case, people will sue for the latest infraction.

Typical types of damage covered by renter's insurance are theft; vandalism; water damage from plumbing, fire or smoke; lightning; windstorm and explosion. Flood damage is not usually covered but is available through the National Flood Insurance Program (800-638-6620).

Greg Hutton, a State Farm Insurance agent in Reston, Virginia, notes that you may want to move up to a "business in the home" policy, especially if you have valuable equipment used for manufacturing. Besides household contents, this covers business equipment and lost income due to interruptions like fire or theft. "A typical policy might include $300,000 of liability coverage but can range up to $1 million or more," says Hutton.

You can take your coverage even higher with a personal or commercial umbrella liability policy, which typically provide $1 million to $2 million in liability coverage. The cost for umbrella policies (when you have a basic policy) is usually nominal.

For bigger businesses that outgrow the home, look into a business owner's policy. This is more comprehensive than a "business in the home" policy, covering more business property and equipment, income loss, theft and liability. The building housing your business is also covered.

Then there's workmen's compensation insurance, required in all 50 states. It's designed to protect employees from medical expenses due to injury on the job, and it also provides a percentage of lost salary, vocational rehabilitation and survivor's death benefits. State law sets the amount of coverage, and insurance premiums are based on your payroll. Generally, workers in riskier occupations pay higher premiums.

Talk with area business owners with similar businesses to see what kinds and amounts of insurance they carry. They can also refer you to an agent knowledgeable in home business issues.

And don't forget zoning, which restricts the way your land is used. The most common categories are residential, commercial, industrial, farming and open land. Besides basic use, zoning ordinances address smaller issues, such as noise, air pollution and parking. Your business would probably be classified either business or industrial. Check with your local zoning office to see if the type of light manufacturing you're doing is allowed on that property. If not, you'll either have to rent space elsewhere or apply for a "waiver" of the zoning ordinance (called a variance, special exception or conditional use permit). We'll talk more about zoning in a future column.

For more information about insurance, check out the following resources:

Learn More
  • Find the right business insurance to weather any storm. Take a look at "Are You Covered?"
  • Before choosing just any insurance package, analyze your needs. Check out "Needs To Know."

Joan E. Lisante is an attorney and freelance writer who lives in the Washington, DC, area. She writes consumer-related legal features for The Washington Post, the Plain Dealer, the Spokane Spokesman-Review and the Toledo Blade (Ohio). She is also a contributing editor to LawStreet.com and ConsumerAffairs.com.

In her practice, Lisante is counsel to ConsumerAffairs.com and was counsel for Zapnews, a fax-based customized news service for radio stations. Previously, she served as Assistant District Attorney in Queens County, New York, and Deputy District Attorney in Nassau County, New York.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.