Getting the right insurance crucial, complicated

By Joyce M. Rosenberg
Associated Press

NEW YORK — Buying or upgrading insurance coverage is often not a priority for small business owners, or it's something they'll get around to after they take care of more pressing matters.

There are two major components to getting business insurance — buying the right kind for your company and making sure you get an adequate amount.

First, a very important caveat: If you run a business out of your house, your homeowners insurance is not likely to cover any accidents that happen as a result of your work. An example would be a customer or delivery person who trips and falls on your walk.

"That's a common misconception, that the homeowners insurance covers the business," said Loretta Worters, vice president for communications for the Insurance Information Institute, a New York-based trade group. She estimated that there are 11 million home-based businesses in the country.

It's similar if you use your family car for the business. You'll need to buy separate insurance or you won't be covered if there is an accident while you're paying a visit to a customer.

Worters describes three types of business insurance. There's business owner's insurance and two kinds that are aimed at home-based companies — an in-home policy and a homeowner's policy endorsement.

The most elementary is the homeowners policy endorsement, which is coverage that can be added to a regular homeowners policy. Worters said this type of insurance covers business equipment such as computers or fax machines up to $10,000 in value. It does not, however, cover liability for falls and other accidents.

You can also purchase an endorsement that will give you liability coverage, but Worters warned that insurers will sell this only to businesses that have few visitors. So if you run a law office out of your home and have many clients coming to visit, you might not be able to purchase such an endorsement.

The next step up is the in-home business policy, which is more comprehensive. It provides more extensive equipment coverage, liability insurance and has other features, including reimbursement for the loss of important papers, Worters said. Such policies are likely to limit the number of employees you can have in your home business.

In-home policies also provide some product or service liability coverage. For example, if you have a catering service, your insurance can cover you in the event your customers suffer food poisoning, Worters said.

"They kind of build it around the type of business you have," she said of in-home policies.

Then there is the even more comprehensive business owner's policy, designed for larger companies and those not run out of a home. There are standard plans, but Worters said many companies purchase customized plans to provide for contingencies they are likely to encounter.

When deciding on insurance, you should be sure to get features such as business interruption coverage, which will reimburse you for lost income in situations such as natural disasters that shut your company down.

And, you need to be sure you have professional liability auto insurance.

While professionals such as lawyers and doctors will buy malpractice insurance, there are other specialized kinds of insurance available for other professions or industries. Worters noted that some advertising firms have special coverage for slander or libel charges.

Other companies might want insurance that will cover them in case of employee problems, such as sexual harassment charges.

If you're in an area that's prone to natural disasters, you need to be sure you have adequate coverage for wind and rain damage and might want to consider more comprehensive coverage than a standard policy. If you're in a flood zone and want flood insurance, you'll need to purchase that separately.

And, be aware that if you use a house or other real property as collateral for a Small Business Administration loan, you may be required to have flood insurance for that property.

As you might do with home or auto insurance, you should shop around and get the best deal for what your company needs. Talking to several agents can help you to understand what's out there.

But before you make a call, get a grounding in business insurance so you can be an educated consumer. There are several primers you can access online. The Small Business Administration's Online Women's Business Center (www.onlinewbc.gov) has pages called "Understanding the Types of Insurance" and "Determining Your Insurance Needs."