Special coverage for home businesses - Insurance

Nation's Business, July, 1996 by Peter Weaver

Sue Rugge, who supplies information and research services for corporate clients, is one of an estimated 15 million Americans who operate businesses from their homes.

One day a brush fire ravaged Rugge's home along with hundreds of others in her area of Oakland, Calif. "The flames destroyed my home and my entire business," Rugge says, "and my homeowner's insurance didn't cover anything connected with my work."

All told, Rugge says, her business losses came to $80,000, including $25,000 in equipment and supplies, $33,000 in business-interruption costs, and $22,000 in lost accounts receivable that she was unable to trace.

She's back in business in a new and now she has not only backup computer files in another location but also another important safeguard for anyone with a home-based business: proper business insurance to supplement her homeowner's policy.

Insurance companies' surveys show that the vast majority of home-business owners around the country have no special coverage for their businesses because they mistakenly believe they are covered by their homeowner's or renter's policies.

"Most homeowner policies include some incidental business-property items," says Sean Mooney, senior economist for the Insurance Information Institute, based in New York City. But this coverage is minimal, he says. You might get coverage for some limited business equipment up to $2,500, which is far too little for most home-business operations.

'if"he next step up," Mooney says, "is to add a business endorsement to your homeowner's or renter's policy." Many insurance companies are coming out with home-business endorsement plans that cost less than $200 a year.

The HomeWork endorsement offered by Chicago-based CNA Insurance Cos. is a good example of what's new on the market. "At a cost of $175 a year, the endorsement covers all business-property items," says Kevin J. O'Boyle, CNA's senior product-development specialist, "up to your personal-property limit plus up to $10,000 worth of business equipment used off the premises." And you can get additional business-interruption coverage of up to a year.

For some rapidly expanding home businesses, however, these special endorsements for homeowner policies might not be enough. In such instances, says Mooney, "the next step up is to get a separate business or commercial policy, which can cost $500 a year or more."

Some national associations are making business policies available for their home-business members. The recently organized Small Office Home Office Association, based in Reston, Va., has a policy underwritten by ITT-Hartford Insurance Co. that covers business interruption, temporary office rental, all equipment and records, storage, warehousing, and off-site equipment usage. The coverage costs $300 to $500 a year.

Home businesses involving crafts are often hard to insure because of the expensive equipment and costly inventory typically involved. The American Phoenix Corporation of Connecticut, in Hartford, has policies designed to cover home-crates businesses. Coverage includes property loss or damage, liability, and off-premises, in-transit coverage. Annual premiums range from $250 to $750.

Some final tips from CNA's O'Boyle: "When checking out home-business coverage, talk to someone who knows all about business and commercial insurance, not just the personal lines. And don't try to hide anything, thinking you're going to get a lower premium. Make a full disclosure of what your business is and how it works."

--Peter Weaver

The author is a personal-finance writer in Bethesda, Md.