The rise in the number of people choosing to work from home has had an impact on home insurance with these individuals adapting their household cover to suit their new circumstances. Steve Dutton explains
In recent years there has been an increase in people becoming self employed, running their businesses from home or taking the opportunity, when offered by their employers, to work from home or ‘telecommute’ as it is sometimes known.
As a home worker, an individual must consider what insurance cover they need and whether it is available to them as standard under their existing household or employer’s business insurance. Or, indeed if they need to take out their own separate cover or extend their existing cover.
Let’s look at a couple of examples.
Risk retained by employer
Sheila is employed as a part time administrator by a local company but works from home.
Sheila uses IT equipment provided by her employer. As the equipment is not owned by her it will not be covered by her own home contents insurer and generally the risk of loss or damage will be retained by the employer.
If she is responsible for the equipment whilst it is in her home she will need to make separate insurance arrangements for it to be covered, as home contents policies specifically exclude business, professional and trade goods or equipment.
She should let her home insurer know the position so they can consider whether there is any alteration to the risk (it is unlikely that different terms will be imposed).
Insuring business equipment
John is an architect specialising in modern houses. He has recently gone freelance and has decided to work from home until his business can support an office.
What is his position on insurance? Well, as we said above, anyone working from home, except on an occasional basis, should inform their home insurer that they are doing so. However, providing the business does not involve clients visiting the property it is unlikely that insurers will apply any special terms.
Generally, John’s home contents cover will exclude ‘property held or primarily used for business purposes’ and also there is no liability cover for ‘employees of any business or profession’.
In John’s case, the main insurance needs centre around the business equipment kept in his home office , his laptop computer which he takes out to meetings and his business liability risks.
He might also want to consider insurance to cover a likely increase in the cost of running the business if his home is destroyed or damaged, for example by fire.
Home business policy
Depending on his insurer he may be able to combine his home and business insurance under what is known as a home business policy.
Home business policies are simply packaged policies combining the usual building and contents cover with cover for the basic risks associated with working from home.
A home business policy will typically include the following in addition to the home building and contents cover:
• Public liability cover generally of up to £2m
• Loss of or damage to business equipment and stock – here there will be a limit of between £5,000 and £7,000 for business equipment and stock cover is often limited to £1,000. Higher limits may be possible for an additional premium. An excess of £50 - £100 will also apply.
• Theft/loss of business money – generally limits are £1,000 for money kept in a safe or being taken to or from a bank and £500 for money not kept in a safe.
The next items may be included automatically or as optional extensions. However, some insurers don’t offer them at all, considering them to warrant separate insurance.
• Employer’s liability with a limit of up to £10m
• Portable business equipment – the value is generally limited to £1,500 and covers equipment taken outside the home on a worldwide basis.
• Increased cost of working (following damage to the insured home) – generally limited to £10,000.
“As a home worker, an individual must consider what insurance cover they need and whether it is available to them as standard under their existing household or employer's business insurance. Or, indeed if they need to take out their own separate cover or extend their existing cover
Finally, as John has a professional occupation and other people may be adversely affected by any mistakes he makes, he should buy separate professional indemnity cover from a specialist insurer.
Karen is a qualified beauty therapist, and now wants to work from home using her downstairs study as her ‘salon’. She doesn’t visit clients but they come to her.
The types of cover she will need will basically be similar to John’s but there are two important differences to consider:
• Firstly, as Karen does not visit clients she will not require portable business equipment cover.
• Secondly, her insurers will want to be advised of the fact that she is allowing clients to visit her premises and they will probably want to apply terms to reflect the increased risks associated with the clients’ visits – (for example, theft and liability risks).
Stand alone business policy
If both businesses expand and they take on staff or maybe sell goods (such as hair products for Karen) it may be inappropriate for them to be insured under a home business policy. In these cases a stand alone business policy would be the appropriate form of cover.
This type of policy normally offers the following as standard cover:
•Portable business equipment
•Increased cost of working
In addition the following optional extensions can be purchased:
• Higher levels of cover
• Legal expenses
• Personal accident
• Products liability
• Goods in transit
Public liability cover
Public liability cover is essential and will automatically be included in all home-based business policies. Employer’s liability, if not included automatically, is always available as an optional extension. However, professional indemnity insurance must be specifically underwritten so is not part of a packaged policy.
Medium and larger businesses and expanding home businesses, particularly those involving more than clerical or professional work, may find that neither home business, nor stand alone business policies suit their needs.
They are likely to be better off with a commercial combined policy, where they can select individual types and levels of cover to meet their exact needs.
Steve Dutton is business development manager at the Broker Academy
This article is taken from Broker Assess the CII’s the on line learning system where this topic is covered as part of one of the 250 courses available to study. For further information on Broker Assess please contact the broker ASSESS team at brokerASSESS@biba.org.uk