Protect And Preserve

Q: I want to start a small homebased manufacturingbusiness. I have cutting equipment, and I've already sold a fewunits. I don't want to get sued if someone gets hurt using theproduct. I don't own a home, but I rent a small place on myfather's property. Is there some type of renter's insurancewe can obtain? How can I best protect myself from liability?

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

Typical types of damage covered by renter's insurance aretheft; vandalism; water damage from plumbing, fire or smoke;lightning; windstorm and explosion. Flood damage is not usuallycovered but is available through the National Flood InsuranceProgram (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 thehome" policy, especially if you have valuable equipment usedfor manufacturing. Besides household contents, this covers businessequipment and lost income due to interruptions like fire or theft."A typical policy might include $300,000 of liability coveragebut can range up to $1 million or more," says Hutton.

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

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

Then there's workmen's compensation insurance, requiredin all 50 states. It's designed to protect employees frommedical expenses due to injury on the job, and it also provides apercentage of lost salary, vocational rehabilitation andsurvivor's death benefits. State law sets the amount ofcoverage, 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 seewhat kinds and amounts of insurance they carry. They can also referyou to an agent knowledgeable in home business issues.

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

For more information about insurance, check out the followingresources:

• Independent Insurance Agents of America,http://www.iiaa.org, (800)221-7917
  
• Quicken Insurance,http://www.insuremarket.com,(800) 695-0011
  
• The Internet Insurance Directory,http://www.insdir.com

Joan E. Lisante is an attorney and freelance writer who livesin the Washington, DC, area. She writes consumer-related legalfeatures 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 andConsumerAffairs.com.
In her practice, Lisante is counsel to ConsumerAffairs.com and wascounsel for Zapnews, a fax-based customized news service for radiostations. Previously, she served as Assistant District Attorney inQueens County, New York, and Deputy District Attorney in NassauCounty, New York.

The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.