As entrepreneur Ann Kitcher stood watching flames sweep through her Laguna Beach, California, home, she never thought she’d face a worse disaster. But when she contacted the carrier who had issued her homeowner’s policy, she really got burned: Kitcher didn’t have loss-of-business-data coverage. And the $5,000 in equipment insurance she did have was just a fraction of the total value of her college curriculum consultancy, which included a PC, $20,000 in furniture, supplies, completed textbooks, and nearly two years’ worth of work in progress. What’s worse, Kitcher hadn’t backed up her files.
“If I’d had a separate business policy, it would have given me the income to pay people to redo the technical stuff in my exam books,” says Kitcher. “Instead, I gave up the business.”
Unfortunately, too many entrepreneurs have found out the hard way that fires, earthquakes, and even power surges can make a shambles out of expertly integrated computer systems and can quickly erase vital business data. A sewer backup in your basement might ruin the most graciously appointed ofrice. Thieves may break into your garage and steal inventory that took weeks to produce. A momentary lapse of concentration and your laptop can fall and get crushed.
With all the product and service purchases today’s entrepreneurs make, few include equipment insurance among their vital needs–that is, until it’s too late. “Many [entrepreneurs] don’t even know they have a need” says Ralph Curtis of the Curtis Insurance Agency in Oxford, Michigan. Unlike health insurance, in which cost is a major obstacle, business insurance is affordable. The problem is that when you’re building a company, you’re too busy to sit down and tally the value of your growing assets. And like Kitcher, many entrepreneurs mistakenly assume that their homeowner’s policy will automatically insure an entire business headquartered in a spare room.
“[Entrepreneurs] have to be aware of equipment insurance or else they might be left without a company,” cautions John Robards, special projects manager with the PC-user’s group Boston Computer Society.
Fortunately, some insurers and agents who had previously viewed home-based entrepreneurs as hobbyists rather than serious businesspeople are now discovering that this is a very desirable market. Over the last year, several policy alternatives have been created. “Home-based businesses are the wave of the future,” says Steve Vedas, product director for RLI Insurance Co. “And right now, this market is being underserved.”
To help you get the best deal on coverage, we’ve gone shopping. First, we created five typical small-business profiles. Then we asked dozens of insurance professionals, including nationwide carriers and local, independent agencies, for examples of the best equipment insurance options for the lowest prices.
Home- and Business-Owner Options
Bill is a 46-year-old computer-systems integrator who’s set up company headquarters in the den of ‘his 10-year-old home, which is insured for $300,000. Because he usually works at his clients’ sites, Bill doesn’t need a lot of equipment. All he has stored at his Troy, Michigan, office are a PC, some peripherals, a few files, and supplies, all of which carry, a total replacement value of $5,000.
Bill’s in a better situation than many knowledge workers, because he hasn’t built an expensive high-tech workstation at home. As a result, his $5,000 worth of equipment is covered by his existing homeowner’s insurance policy with State Farm Insurance Co. Even so, the stuff sitting in Bill’s office would be covered only if it were damaged by fire or theft–but not by such accidents as spilled soda on the keyboard. More important, Bill wouldn’t be insured against the loss of business income and lost data in the event of a disaster.
Unlike State Farm, many carriers’ standard homeowner’s policies–which cost roughly $800 to $900 annually–cover only $2,500 in office equipment. If that were the case or if Bill were thinking of purchasing more equip* merit in the near future, he could pick up a rider to his existing homeowner’s policy that would protect his valuables, income, and lost data in the event of a catastrophe.
For example, at Central Park Insurance Agency in Troy, an agent told us that Bill could buy a $40-a-year rider through Michigan Millers Mutual Insurance or Meridian Insurance companies. By doing so, he would extend his homeowner’s coverage to his business property at home, under the policy limit of $300,000 for his entire dwelling. And if Bill suddenly became a systems integrator who traveled with expensive equipment, he could purchase a floater policy for another $250 annually that would cover his equipment–no matter where it was located.
To find Bill coverage of his business income, we continued our shopping expedition and gave Utica National Insurance Group (800-933-1914) a call. With this carrier, Bill would have to switch his homeowner’s policy and would pay only $25 a year for a rider. He’d still get $5,000 in computer equipment coverage—enough to protect his office essentials. Utica’s rider also extends coverage to common office risks, such as power surges, viruses, and the infamous soda-spilled-on-the-keyboard catastrophe, not just such basic perils as fire or theft. Plus, he would be covered for up to $2,500 if his equipment were damaged off-premises and $1,000 in expenses for re-creating business records. Still, this policy does not include loss of income coverage–vital for someone carrying a home mortgage.
After doing more digging, we found out that CNA Insurance Co. (312-822-5000) has recently been targeting home-based businesses, but again Bill would have to switch carriers. A local insurance agent told us that the Chicago insurer now sells HomeWork, a rider on its homeowner’s policy. Available in at least 22 states including Michigan, HomeWork is more like a business insurance policy; it would set Bill back $175 a year, plus the deductible on his homeowner’s policy.
Although the cost is higher, the benefits are better: First, with HomeWork (available only to nonindustrial operations), Bill could match the limit of his on-premises business property to the amount of homeowner’s insurance he would take out, roughly $300,000. This is unlike Bill’s present policy, which insures only $5,000 in office equipment. And it may be a smart move–especially if he plans to make some major business purchases. Second, HomeWork covers the loss of Bill’s income for up to one year while his company’s valuables are being repaired and replaced. The policy also pays up to $10,000 in costs for re-creating destroyed data and another $10,000 if Bill’s accounts receivables records were destroyed and he were unable to reconstruct them. What’s more, HomeWork compensates up to $15,000 if a laptop, cellular phone, or any other portable product is destroyed while Bill is away from home.
But before we had Bill switch carriers, we called his State Farm agent, who told us that the company offers homeowner’s policy riders comparable with CNA’s. The good news is that the rider would carry a lower annual premium than CNA’s–$150 annually, with a $250 deductible. The bad news is that the costs of recreating business data wouldn’t be included.
But because Bill doesn’t want to change his homeowner’s carrier–or if he rented–he should consider a separate business insurance policy. For that purpose, we contacted RLI (309-692-1000), which sells its In-Home Business Insurance. He’d get comprehensive coverage of his $5,000 in equipment against any insurable loss, including theft, and the policy would cover the expenses of setting up a new office temporarily as well as loss of income for up to one year. In addition, In-Home is currently .expanding its off-premises coverage from $1,000 to $5,000 starting in California (call your local independent agent to see if it’s available in your area). All these benefits are available for a $150 annual premium–the lowest we’d heard yet–and the lowest deductible, a mere $100. There’s one caveat: At this premium, RLI would provide only up to $1,000 to re-create business data, including accounts receivables–far lower than the ceilings included in CNA’s basic policy. But for Bill, who backs up religiously and who doesn’t wish to switch homeowner’s insurance carders, RLI’s policy might be his best option.
Service Firm Smarts
Claudia, 37, is a wedding photographer based in LaJolla, California. She really doesn’t have a home office per se, just some files where she stores negatives, receipts, and so on, and a PC worth $2,000, which she uses for her accounts receivables. But she does have photographic equipment that she stores at home that has a replacement value of $13,000. She takes all of her essentials to weekend wedding shoots.
When shopping for Claudia’s insurance, we were bluntly reminded that home-based businesses are still perceived ignominiously by many in the insurance industry: Some agents told us they were too busy to deal with small accounts. And when we contacted Valerie Seymour, an agent at Brentwood, California, W.F. Hooper Inc., we learned that California home-based business owners may have double difficulty. Because insurers are reluctant to write homeowner’s policies here due to the severe earthquakes of the last 10 years that have drained finances, Seymour suggested that the photographer buy a separate business insurance policy.
So we contacted a local agent at Robertson-Rock Insurance, who was eager to issue Claudia a business owner’s policy through Allied Insurance or another insurer that he represents. The annual premium would be roughly $550, with a $250 deductible.
The important aspect of a business owner’s policy is its “inland marine property floater” provision, which protects Claudia’s photography equipment wherever she takes it. Even if Claudia rented her home, she’d be covered. A business owner’s policy also includes minimal coverage of business property and valuable papers, disks, and tapes kept at her home, loss of income, and liabilities that she might encounter as a service entrepreneur–say, a wedding guest who tripped over one of her power cords and broke a leg.
Trying to find a better deal for Claudia and knowing that small-business organizations have group purchasing power, we checked out the Small Office Home Office Association’s (SOHOA, 888-764-6211) offerings. Its business owner’s insurance package, sold through ITT Hartford and the Insurance Services Group, provides comparable coverage. Claudia’s premiums would be about $400 a year, with a $250 deductible–a better deal than what the Robertson-Rock agent quoted us. Even though the association membership fee of $49 a year is not required, its premium still cuts too deep into the photographer’s budget.
So we made more calls and found the best deal at RLI. The carrier would write Claudia a business owner’s policy, which sells basically comparable coverage to what Robertson-Rock offers– $13,000 in coverage on- and off-premises–for $338 a year, with a $100 deductible. Unlike the policy RLI would write for Bill, however, this covers equipment no matter where it’s located. In addition, common catastrophes are included, except for intentional damage and such disasters as wars and floods.
Mary, 61, sews dresses, quilts, comforters, and other items for sale at trade shows all over the mid-Atlantic region; she also assembles garments on assignment for balls, proms, and social occasions. In a bedroom of her Rockville, Maryland, home, she has $12,000 worth of sewing machines and equipment and typically has on hand about $3,000 worth of supplies (fabric, zippers, buttons, and so on). On racks in her attached garage, she stores about $5,000 in finished goods, which she sells at shows, as well as her booth setup that cost $2,000 to construct.
To locate an insurance carrier for Mary, we called the Independent Agents Association of America (800-221-7917), which lead us to Bill Kingsley at The Insurance Exchange (301-279-5500). He explained that Mary’s business setup presents some unique problems. Unlike most home-based businesses, she’s not buying insurance to protect high-tech equipment. Instead, she needs coverage for all sorts of perishable materials, significant inventory, and even a trade-show booth. There’s no way a homeowner’s policy could cover her company, he says. Besides the high value of her inventory, Mary more than likely would need to present a certificate of insurance-for liability coverage–before craft-show operators would let her set up a booth. For that reason, Kingsley suggests a business policy.
(It’s worth noting here that many of the experts we spoke with said small-business owners should consider purchasing equipment and liability insurance simultaneously. That’s because many carriers are creating policies that cover both areas for one premium. However, because each type is so important to safeguard your company, we’ll report on liability insurance separately in next month ‘s final installment of this three-part series.)
To help Mary find the best protection, The Insurance Exchange suggested she contact Traveler’s/Aetna, which would write a policy that includes complete coverage of her equipment, supplies, and inventory; coverage of goods in transit as well as of the personal vehicle that she uses to go to shows; business-income protection; coverage of her accounts receivables; and up to $2 million in liability insurance. Her premium: a whopping $750 a year, with a $250 deductible.
Although this policy appeared to have left no stone unturned, it far exceeds most small-business owners’ budgets. So we gave SOHOA a call. Its comparable policy costs $450 a year, with a $250 deductible–a more reasonable figure. The main difference is Mary’s liability drops to $1 million in coverage. Gary Roth, COO of the Insurance Services Group, also recommended that Mary take out coverage that would protect her inventory while in transit if it were involved in a business-related accident. That would cost an additional $50 a year–a better deal than The Insurance Exchange could offer.
But it wasn’t until we called RLI that we hit on a winner. Its basic business insurance policy would cover Mary, all her materials, and $1 million in liability insurance, for an attractive premium of $431 a year, with a $100 deductible. The policy covers damage that’s done on- or off-premises (including transit), re-creation of lost business records–such as accounts receivables–for up to $1,000, and her lost income and the expenses of temporarily restoring a business for up to one year. However, this includes only $1 million in liability–a coverage choice Mary will have to make.
Have Clients, Will Travel
Cedric, 38, was downsized out of a personnel management position for a Fortune 500 company four years ago. He’s since become a human-relations consultant for several international firms. When he’s not in his Deerfield, Illinois, office, Cedric’s hopping planes all over the globe. Although he’s got a $2,500 PC at home for billing clients, most of his work is done with a $4,000 laptop. His other on-the-road companions include a printer, cell phone, and PDA.
Most of the insurers we’ve mentioned in this article sell some form of off-premises provision to their basic policies that protects portable equipment. So when we turned to an agency we hadn’t tapped–Safeware in Columbus, Ohio, which caters to small-business owners–we were surprised by the additional options offered. For an annual premium of $200, with a $200 deductible, Safeware’s Key Policy provides up to $10,000 of coverage on all Cedric’s equipment from damage or loss due to typical disasters, theft, and power surges anywhere in North America–whether his PC was fried or his laptop lifted.
For $99 a year in addition to the Key Policy premiums, Safeware will provide up to a total of $5,000 to protect Cedric’s custom-written software, peripherals such as copiers and phones, newly acquired equipment for 30 days from purchase, and reference materials such as computer manuals. Better yet, this Cadillac of traveling policies will reimburse Cedric for equipment rental after a catastrophe and it will cover most other expenses that might occur as a result of a business loss. Although Cedric may have to adjust his budget for this kind of coverage, the only drawback we found is that the policy doesn’t replace his lost income in the event of a disaster and it doesn’t give him international protection.
When we inquired further, we learned that he can indeed buy additional protection from Safeware for anywhere in the world for $200 a year, with a $250 deductible, which would give him $4,000 in coverage. But because his laptop alone is valued at $4,000, we asked about boosting international coverage to as high as $8,000 in benefits. Again, it was available for an additional annual premium of $80. For adequate coverage, this would be Cedric’s best bet.
Unlike Cedric, if you travel internationally only on occasion and want similar coverage, Safeware sells a $90-for-90-days policy, with a $250 deductible. The restrictions (and these apply to all of Safeware’s international coverage): Damage from power surges outside the U.S. and Canada isn’t included; you must be based in America with a mailing address here; and you should contact the company at least three days before your trip. But, if necessary, you can obtain the policy virtually on a moment’s notice by calling 800-800-1492 and charging the premium to your credit card. “We’ve had people call in from airports,” says a Safeware spokesperson.
Safeguarding Virtual Valuables
Peggy is a 28-year-old graphic artist who works out of the basement of her home in Waukesha, Wisconsin. She’s got about $23,000 worth of software, scanners, and other electronic essentials, including disks on which all her work-in-progress and completed artworks are stored. Peggy usually has several hundred dollars’ worth of her creations waiting to be delivered.
For one-stop insurance shopping, we took Peggy’s case to Frank Haack & Associates, a local independent agency. Knowing that Peggy’s business assets are information intensive and exceed most homeowner’s policy limits, we asked agent Allyn Steffen for the best business owner’s policy she could find for our Waukesha businesswoman.
One option, she told us, is Safeco Insurance’s policy, which would cover Peggy’s business for $281 a year in premiums. A second is Heritage Mutual Insurance, for $383 a year. And the third choice is CNA’s business owner’s policy (not HomeWork), which would set Peggy back $400 a year. Each policy offers $25,000 in equipment coverage, loss-of-income coverage, and $1 million in liability insurance and includes a $250 a year deductible.
Why the huge price range, we asked? Heritage and CNA offer a few extras in their minimum business policies that Safeco doesn’t. For example, Heritage pays out more for reconstructing business records and missing securities; CNA provides this plus higher coverage of property in transit. What’s more, CNA’s premiums can be locked in for three years. But unless Peggy were concerned about rising insurance expenses, none of these added features give her significant protection. And the additional annual savings she’ll reap may come in handy!
But, cautions our rep, Peggy should consider more coverage than the total added value of her equipment, because she has completed or partially completed artwork on premises (see accompanying box, “Divert Data Disaster”). “True, there’s nothing she could do to replace her creative content,” says Steffen. “But it has value to her business that she shouldn’t overlook.”
So, in search of better data-intensive business protection, we called RLI. It sells an extra provision to its business owner’s policy called an “electronic data processing (EDP) endorsement”–ideal for digitally intensive enterprises such as Peggy’s. With RLI’s policy, the total business owner’s and EDP premium would be $668 a year–much higher than the other quotes we’d heard. But when it comes to protecting your creative works, you shouldn’t base your decision on price alone.
Besides, reasons RLI’s Vedas, an EDP “gives broad coverage with respect to mechanical failure and short circuits, and it has fewer exclusions than our regular policy. It also extends to 60 days the time of coverage of newly acquired equipment that she hasn’t yet told her agent about.” All in all, this is a business decision Peggy and every entrepreneur must make when shopping for coverage.
Clearly, your equipment and business insurance options available today are staggering. Despite this, “there are a lot of people running naked out there without coverage,” says SOHOA’s executive director David Schmitt. “And the only time [entrepreneurs] find out they’ve got a problem is if their house bums down.”
So to avoid a small-business catastrophe and win the game of business, it pays to be protected.
Divert Data Diasater
Sure, insurers cover the restoration of lost files if disaster strikes. But they still haven’t come up with a way to replace lost business while you’re re-creating those files.
“Your clients may go somewhere else if you’re down for a month trying to reconstruct everything you’ve accomplished during the last two years,” says Bill Kingsley of The Insurance Exchange agency in Rockville, Maryland.
Although there’s no way to completely protect yourself from catastrophes, here are some strategies to safeguard your information.
Secure a second copy. Backing up isn’t hard to do, so make it part of your daily routine. Besides your database, creative works, and billing records, other items that need duplicating include investment documents, contracts, supplier lists, and receipts.
Create an inventory list. Most office components have visible serial numbers. Record them with such programs as Proof 2.0 (Fusion Software, 800-856-8566; Win; $9.95), print out two copies, and store each in separate locations off-premises. For extra protection, videotape your office equipment.
Find a safe haven. Stash your inventory lists and back up disks and videotapes in such places as a safe-deposit box, or your mom’s house. But avoid the basement because it may flood.
Lastly, keep in mind that having a warranty doesn’t automatically render you worry-free. A warranty may protect you against product defects, but it is no substitute for equipment insurance. “It won’t cover your loss of data from fire, lightning, or power surges,” adds Allyn Steffen, at Frank Haack & Associates agency in Milwaukee. What’s more, an extended warranty on all your components may cost more than the premiums for some policies.
Inside Advice on Insurance
When scouting for business coverage, consider these pointers.
Investigate your insurer. Just because your carrier is listed in the yellow pages doesn’t mean the company is reputable. Before you buy coverage, call your state insurance department to make sure an insurance carrier is licensed. Also check the firm’s ratings in such guides as A.M. Best, Moody’s, and Standard & Poor’s, all of which evaluate the financial stability of insurance companies.
Watch your policy’s prose. Nearly all policies nowadays cover current out-of-pocket costs for repairing or replacing damaged goods. But if you’re covered under an old plan, make sure your policy doesn’t offer “actual cash value.” This means you’d be paid only the depreciated value. And, believe it or not, replacement-value coverage doesn’t raise premiums that much.
An option worth looking into for computer-intensive business owners is “functional replacement costs,” which pays you to replace the damaged equipment with comparable equipment that may be more or less expensive than what it replaced. For example, if a power surge fried your 386 PC, such coverage might allow you to upgrade to a 486 because it’s the current functional equivalent of what your 386 was when you bought it–or simply because you probably couldn’t find a new 386 even if you wanted to!
Look for round-the-clock service. If possible, select an insurer that has 24-hour access. “A loss situation can be a very traumatic time,” says one Maryland agent. “And you need to talk with someone who can help right away.”
Ask if claims are paid promptly. When you have to replace damaged office essentials, you can’t wait forever. So it’s not unreasonable to ask potential carriers how long you’ll have to wait for payment after filing a claim.
Protect Your Portables
Whether you schlepp a ThinkPad cross-country every month or a PDA and cell phone across town each day, the probabilities that your high-tech essentials will be in jeopardy are about the same. Last year alone, nearly $1 billion worth of equipment was damaged or stolen. Naturally, you should insure your portables. But to help you head off potential problems, we asked experts at Safeware insurance, which specializes in computer coverage, and Corporate Travel Safety in Canoga Park, California, for on-the-road advice.
Leave your mark, Should, say, your laptop get lifted at LaGuardia airport, you’ll help police recover it faster if you’ve used an etching pen or nonwashable ink to permanently identify components. Better yet, Security Tracking of Office Property (800-488-7867) sells an aluminum plate for $25 ($8.75 if bought in bulk) that bonds to your PC. If removed, it leaves an indelible imprint reading, “Stolen Property.”
Secure your system with software. CompuTrace TRS, a program by Absolute Software, silently tracks down thieves when they hook up your stolen machine’s modem to a phone. Working in the background, the software dials the publisher’s headquarters to reveal the crook’s location, and using caller ID, the company notifies police once you report your system stolen (800-8IT-HEFT, http://www. absolute. com; $60 for a one-year service contract).
Forget those files. Even if you can’t catch the crook who stole your PC, you can at least render your files worthless with such encryption programs as RSA Secure by RSA Data Security (415-595-8782; Win 95/Win 3.1/Mac; $129). This program can also be downloaded for a 30-day trial period through http://www.rsa.com.
Circulate your stolen serial numbers. Another option for trying to recover your laptop is to list it with the National Computer Registry, a hemisphere-wide clearinghouse for stolen PC serial numbers. This group tries to intercept and recover your stolen computer by making its serial number available to law-enforcement agencies and resellers. There’s no charge to have the number of your purloined machine listed, which you can do via the National Computer Registry’s Web site (http:// www. nacomex.Com/stolen/), or call 212-614-0700 and ask for the registry form.