Contents Insurance May Not Suffice For Your Home Office
Sydney Morning Herald
Tuesday December 3, 1996
The home-based business is one of the fastest growing areas in the small business sector.
Growth is driven largely by outsourcing, by restructuring, and by advances in communications which make working from home much easier.
But because expansion has been so rapid (there are now 5,000 home businesses in NSW) many face teething problems - one being insurance.
Noel Pettersen, executive director of the National Insurance Brokers Association (NIBA), says many operators have an ostrich-like mentality to business insurance. They think that because they're operating out of home they're immune from the disruptions that affect larger SMEs.
Some dismiss the need for insurance, thinking they're covered under their home contents policy. "Usually they're not," he says.
It hasn't helped matters that the major general insurers have so far largely ignored the needs of small home-based businesses.
But a home-based business is a small business like any other, Mr Pettersen says, with many similar insurance requirements.
Failure to insure adequately can leave you just as exposed as a larger business, he says. Having to replace equipment or meet some other claim can just as easily ruin you - particularly in the cash-hungry start-up years of your enterprise.
He says home-based business insurance needs fall broadly into four categories:
* Business stock, materials and equipment, covered for fire, theft, and storm, water and other types of damage.
* Public liability. This is to cover claims arising from accident or injury to third persons and their property on your premises - particularly important if you have clients or customers visiting at home.
* Professional indemnity. This is particularly important for consulting professionals who provide advice. (Product liability cover is also important for those manufacturing or selling high-risk goods or parts.)
* Worker's compensation. By law, employees - including part-timers and casuals - must be covered. If you're using a company structure and paying yourself wages, you'll need to cover yourself.
If your needs are very basic an extension of your home contents policy may suffice.
AMP, for example, recently added a home business extension to its standard home contents policy. The policy offers up to $10,000 cover for basic office and computer equipment and up to $10 million third party person/ property cover.
The cover would suit a simple home office, such as one person working out of a single room. For anything more, a business package is needed, AMP says.
Most of the major general insurers offer business packages. A typical package covers burglary, fire, broken glass, employee fraud, business interruption (which maintains cash flow during a temporary disaster) and public, professional and product liability cover.
However, many home-based business proprietors are caught between these two alternatives, says Colin Grantley-Blake, commercial manager of Home Based Business and Finance Insurance Brokers.
They want more than just an extension on a domestic policy but can't afford the high premiums for the business package. "Insurers don't like the small amounts of cover, so they raise premiums to make it worth their while," he says.
Mr Grantley-Blake's company has stepped in to fill the gap with the launch last month of a no-frills home business insurance package underwritten by Sun Alliance.
Called the Home Based Insurance and Finance Pac, it provides much the same type of cover as a standard business insurance package but at a lower premium. Premiums are $600-$800 a year for cover costing up to $2,000 elsewhere, he says.
Even so, says NIBA's Noel Pettersen, business packages may still not provide all the cover you'll need.
Worker's compensation has to be taken out separately through one of the dozen or so insurers licensed by WorkCover.
Higher levels of professional indemnity may need to be obtained through specialist insurers.
And don't forget disability insurance, says Mr Pettersen. Most self-employed people forget to insure themselves in case of accident, injury or illness.
Mr Ian Bristow, risk insurance expert at financial planners RetireInvest, recommends income protection, which insures up to 75 per cent of your income, coupled with business expenses insurance, which will pay your overheads while you are off.
Unless your needs are very simple, Mr Pettersen says, you should consider using an intermediary such as an agent or insurance broker to arrange your insurance. A broker won't cost you any extra, he says, and may save you money by arranging only the cover that you really need.
© 1996 Sydney Morning Herald
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