Got it covered?

Entrepreneur, Jan, 1998 by Heather Page

There's no denying that personal computers and computer-related equipment have become an integral part of today's business landscape. How many times have you thought to yourself, "I just couldn't run my business without my computer"?

Because computer equipment is so important to the productivity, success and survival of most businesses, it's important to take precautions to ensure you're protected in the event your equipment becomes damaged or destroyed. And that's not an unlikely event by any means. According to Safeware Insurance Agency in Columbus, Ohio, which specializes in coverage for computer and high-tech equipment, more than 1.6 million computers in the United States were stolen, zapped by power surges, or otherwise damaged or destroyed in 1996, accounting for a whopping $2.3 billion in losses.

Having the appropriate insurance coverage minimizes your financial loss if your business's computer equipment becomes damaged in the event of fire, flood, theft or electrical surge. If important data should be destroyed, some insurance plans will cover your costs to rebuild it. You can even buy insurance for crises more directly related to computer equipment, like viruses and hard-drive failures.

* PROTECTION PLAN

Before purchasing any kind of coverage, carefully analyze the risks involved in your particular business. Consider your location, industry and overall reliance on the computer equipment, and then formalize the best protection plan, says Sean Mooney, author of Insuring Your Business: What You Need to Know to Get the Best Insurance Coverage for Your Business (Insurance Information Institute). In most cases, this will include purchasing some kind of insurance coverage for computer systems, but it may also include setting up standard procedures to back up data, among other things.

Once you develop a protection plan, find an insurance agent who is knowledgeable about your industry and is familiar with the types of risks your computer equipment and data are regularly exposed to. It's also a good idea to check with a professional or trade association for recommendations on the type and amount of computer coverage that businesses like yours generally require.

Computer equipment in home-based businesses is usually covered by your homeowners or renters insurance, but keep in mind that this type of coverage is often very limited. Contact your insurance agent to determine the replacement limit on your business equipment. If necessary, get a rider to boost the coverage or purchase a separate business owner's policy that includes adequate coverage for your computer equipment.

For other businesses, a standard business owner's package, or BOP, will generally provide adequate coverage, Mooney says. Under a BOP's property policy, damage to computer equipment from a fire, flood, theft or vandalism is usually covered.

Some BOPs also cover your costs to recover any data stored on your business's computers if it is damaged or lost. It's often very expensive and difficult to retrieve important documents. However, you can purchase insurance that will pay to have those records retrieved or recreated. Check to see if this is included in your insurance plan already, and if not, consider adding this coverage.

If you or your employees take notebook computers or other equipment along while traveling, find out if your BOP covers business equipment outside the office and how much is covered. Many will cover business equipment against theft anywhere in the world. If yours doesn't, you probably have the option to get a rider that protects your computer equipment from theft on the road. Or you can buy what's called a "floater," a form of insurance that covers movable property like computer equipment as long as it's within the territory limits imposed on your contract. Floaters generally run less than $1,000 annually.

* GOING THE EXTRA MILE

In 1994, Chateau Builders Inc., a small construction company in Columbia, Maryland, purchased an Electronic Data Policy. (EDP) that included coverage for hazards such as computer viruses and power surges. The company felt its computer equipment was vital to its overall survival and wanted to be sure the equipment was thoroughly protected. Two years later, Chateau Builders' preparedness paid off: An outside consultant inadvertently inserted a disk with a computer virus on it into one of the company's computers and contaminated the entire network. Not only did the insurance company pay to have the corrupted server restored, but it also covered the business the company lost while its computers were down.

"We were very fortunate because [the insurance] covered around $2,400 on a $250 deductible," says Jo-Ann Sanford of Chateau Builders. "It defrayed much of our costs."

EDP insurance isn't for everyone. However, it makes sense for companies that have invested a large amount of money in computer equipment, frequently expose their systems to risks, or rely heavily on computer technology. EDP insurance steps in where most BOPs end, covering additional hazards your standard business coverage doesn't include. Most insurance companies offer EDP insurance.