Insurance: do some home work

Self-employment: will contents cover protect you if your house is your office?

Suffering a burglary, fire or accident at home is traumatic. If you run a business, a similar disaster at work can jeopardise your livelihood.

The market for home insurance has become competitive, especially with the arrival of phone sellers such as Direct Line. Insurance for small businesses, by contrast, has changed little: it is still dominated by brokers and products are complicated and expensive.

In an insurer's eyes, starting self-employment means becoming a business. This brings commercial risks. A business, at home or in office premises, is as vulnerable as anything else to fire, theft or a flood. But trading brings its own hazards.

The risk of theft is just one area where insurers treat businesses and homes differently. Even the established professions can find cover expensive or restricted, if staff or clients visit in any numbers. This still applies if the business is in the family home. "We have no problem with clerical work," points out David Walker, underwriter at Royal Sun Alliance Direct, "but with work like homeopathy or dentistry we would like to know the number of visitors; that has some impact on the theft cover."

Fortunately for the thousands each year who start a business from home, insurers are becoming increasingly flexible and open to the needs of the self-employed. There are still contents insurers that will exclude cover on any items used for business in the home, but their numbers are falling. With these firms, even a home computer is vulnerable if it is used for the odd letter or report. Other companies are happy to extend cover, but they need to be notified. This does not always mean an increase in premiums. Home workers are actually less vulnerable than commuters to burglary, as they are often at home.

"The standard advice to anyone is to tell the insurance company," says Phil Hickley, spokesman for Guardian Insurance. "We have no difficulty at all with most self-employed occupations, although we would draw the line at, say, a plumber or electrician." That is because these people will spend most of their time working away from home, while at the same time storing potentially expensive equipment there.

Policies designed for what insurers term "high net worth individuals" now often include some cover for business equipment as standard. Insurers realise that more and more people are self-employed, and even employees may have a fax or laptop computer at home. Royal Sun Alliance gives pounds 7,500 of cover for equipment, and pounds 2,500 for stock. These sums can be extended to cover more expensive hardware.

A good home insurance policy may be everything a self-employed person needs, with the advantage of a single premium and no arguments between insurers about who pays if there is a claim. But home policies only usually cover equipment used in your job rather than your work liabilities. And even with equipment there are restrictions, and these are not always obvious. Insurers are wary about mobile phones, and cameras are limited on some policies to pounds 250 per item, below the cost of many good models.

Few home contents policies cover business liabilities. They normally allow for cleaners and nannies, but someone who helps maintain a home office is in a grey area. If a business employs staff, employer's liability insurance is a legal requirement.

Depending on the business, a freelance such as a consultant might also want professional indemnity cover to protect against allegations of wrong advice, and a craftsman or designer might need product liability in case goods prove faulty. Anyone who visits clients' premises or meets their customers would do well to consider public liability, too: something as simple as spilling coffee on a customer's jacket during a meeting could start a costly legal wrangle.

These risks can be covered on a stand-alone basis, but a domestic insurance company is unlikely to be much help. Even high-street banks, which sell domestic and business insurance, may refer customers to a separate office for business risks.

"There is a problem identifying what liability cover businesses need," suggests Mr Hickley. "Our advice for anybody starting out in business on their own is to visit a good local insurance broker." An alternative is a specialist policy designed for home workers or small businesses. Commercial Union offers a policy exclusively through brokers branded Tolson Messenger; ITT London and Edinburgh has a home work policy sold through brokers; and Lloyds has a customised scheme.

Next week: You are your business's greatest asset. How can you insure yourself against being unable to work?