If the house is an office, take cover

Insurance is vital if you join the growing band of people working from home, says Tim Collison

IF YOU believe the statistics, working from home could soon be as common as struggling into the office every day. The Henley Centre predicts that by the year 2000, 30 per cent of all workers will operate from home for at least part of the working week, rising to 52 per cent (13 million people) by 2010.

If you are thinking about joining this growing band of homeworkers you will need to look carefully at your home insurance policy - the chances are it will not provide adequate cover for business activities.

This is certainly what Fid Backhouse, a graphic designer in Suffolk, found when he started to invest in computer equipment for his home-based studio. "It was the classic insurance scenario, I suppose, finding out that my household policy did not cover my business equipment," he says.

"The insurer [Royal & SunAlliance], not unreasonably, let me reach pounds 10,000 and then, when I told it that I had changed a piece of equipment, said: `You're not running a business are you? You're not covered.'" In order to protect his home-based business, Mr Backhouse bought what is known as a "homeworking" policy from Tolson Messenger, a specialist broker.

While some insurers will provide business contents cover on a standard household contract, it is often limited to around pounds 2,000 and the policy will not offer other essential elements of cover provided by a homeworking policy.

Insurers started to recognise the needs of people working from home in the late 1980s when it became clear that commercial insurance policies were inappropriate and too expensive for homeworkers.

There are three basic types of homeworking policy: a household policy with a business extension, combined household and business insurance and a standalone contract.

The advantage of one of the joint household and business policies is that everything is kept simple under one contract, so if you have to claim, you only have one insurer to deal with. And with business extension type policies, such as from ITT London & Edinburgh, you get to choose what elements of commercial cover you require, at an extra cost of course.

Convenience is clearly a big selling factor here. The downside is that, like all standard household policies, these contracts are postcode-rated and if you are in a high-risk area, you could end up paying an expensive premium for combined cover. With a business-only policy, you get a full range of commercial cover for a flat fee. For example, Tolson Messenger's Home Business policy, underwritten by CGU, allows four levels of cover: pounds 7,500 of business contents for a premium of pounds 125, pounds 10,000 contents at pounds 155, pounds 15,000 at pounds 205 and pounds 20,000 at pounds 270. As this type of cover is for business, the premium is tax-deductible. Some business-only policies will also allow you to bolt on household cover, such as Axa Provincial's Unity contract.

Regardless of the type of policy you take out, there are several key things you should look for in the cover. It is more than likely that the most important, and the most expensive, item of business equipment will be your computer, so you must look carefully at the wording under this section.

Because of the high risk of theft associated with PCs and laptops, all insurers will impose a limit on any one claim for computer equipment. For example, with Norman Insurance it is pounds 2,500, Guardian's is pounds 2,000, whereas ITT L&E and Axa Provincial both offer pounds 5,000. Beyond this you should check what cover is given for loss of computer data.

As a business, you will certainly need liability cover. If you have any employees, you are required to take out employees' liability - most policies offer up to pounds 10m, which is more than sufficient. You will also need public liability cover. The key thing here is to check whether cover is restricted to your premises. If, like Mr Backhouse, you visit all your clients and suppliers, you will need PL insurance that covers you for anywhere in the UK

Another important element of cover is business interruption (BI) or loss of income insurance. If, say, you have a fire at home and cannot work for a month, that is a month's profits down the drain. Norman Insurance will pay up to pounds 25,000 on a BI claims, Guardian pounds 100,000 over 24 months and with Independent you can set the limit to suit you.

If you are now sold on a homeworker policy, be warned there are certain occupations that insurers will either not cover or will charge a high premium because of the perceived risk. For example, Guardian steers clear of car dealers and medical occupations such as chiropractors. And if you are running your business from your garden shed, you can forget it.

Contacts: Tolson Messenger, 0181-741 8361; CGU, 0171-283 7500; ITT London & Edinburgh, 01903 820820; Independent Insurance, 01732-865 211; Guardian Insurance, 01473 212422; Axa Provincial, 01539 723415; Norman Insurance, 0118-955 2222; NIG Skandia, 0171-253 2536.

Tim Collison is editor of `Professional Broking' magazine.