Money: Get under cover if you work at home

Insurance is important if you intend to turn a spare room into an office

THE CONTROVERSIAL new film In the Company of Men, depicts the cut-throat world of office life in the 1990s, a vision backed up by a recent advertising campaign that suggested that you cannot afford to take a day off with flu without colleagues moving in on your job.

In some ways it is perhaps not surprising that for a growing number of people, working from home can seem a safer and saner option. Not only can you avoid commuting, machine coffee and the boss, but home workers can combine both career and family commitments.

Advances in technology and communications have also allowed people from a range of industries to work at home. And as companies continue to cut workforces this trend looks set to continue. A recent survey by the Henley Centre of Forecasting predicted that the number of people working from home would double by the end of the century. Current estimates suggest there are nearly 3 million home workers in Britain today.

However, working from home is not without problems. Not least of these is insurance. Most home workers start off with little more than a fax and a computer in the front room.

But unless you tell your insurer you are running a business from home you could find a claim being rejected. An insurer might take the view that running a business from home changes the nature of the risk it has agreed to cover. In theory, you should also contact your mortgage lender as the terms of your contract could be breached by starting a home office.

Commercial Union says most home workers do not have adequate insurance. According to Andy Homer, the general manager: "Only a minority of home- based business people have appropriate cover, with the unfortunate result that some individuals have been forced to close their business following a theft or breakdown of equipment."

With fledgling businesses there are often simply not enough spare funds to replace damaged equipment or stock.

Home workers have a number of insurance options. They can take out an extension on a home contents policy to cover business equipment, buy a stand-alone commercial policy for home workers, or buy a combined policy designed to cover both business and home insurance.

Royal & Sun Alliance is one company that offers the first option. The company's Home Shield contents policy can be extended to include computers and fax machines. Surprisingly, perhaps, this does not cost any extra in terms of premiums per pound of cover.

While these extensions are the cheapest way of getting insurance, they often only offer limited cover. Mr Homer claims: "Extension policies are simply not designed to protect the [full] needs of business people working home." But for people working alone whose job involves sitting in front of a computer all day this is probably the only insurance they need.

The other two options offer far greater protection for businesses. It is worth considering that with a stand-alone policy you do not have to cancel your existing contents cover, and the premium you pay is also tax- deductible.

Tolson Messenger, an insurance broker, launched one of the first insurance policies for home workers. Ian Jones, a director, says: "As soon as a home worker visits customers, has stock delivered or even gets a neighbour in to help with the typing, an 'extension' that only covers business equipment from fire or theft is effectively useless."

Home worker policies offer full cover for business stock and money as well protecting equipment, such as laptops when they are out of the home. Insurance should also cover your goods when they are in transit.

Accidental damage cover is invaluable and it is worth checking that this is included. As we all know, coffee and computers do not mix well and spilt drinks can cause hundreds of pounds worth of damage.

One area that is often overlooked by policy holders is liability cover. If home workers are not properly covered and are subsequently sued, the costs could cripple the business. Norwich Union's Home Plus policy offers home workers pounds 1m public liability cover in case a customer or supplier injures himself while on your premises. Do not fall into the trap of thinking your home is safe so you do not need this insurance. Accidents do happen: just think about the toys that the kids have left around, that bit of carpet you meant to tack back down or the wires running across the floor from the computer to the telephone point. In all these cases it could be proved that you have been negligent and have failed to protect visitors.

If you are employing staff, even on a casual basis, employers' liability is essential. Again this is standard on most home workers policies. Norwich Union offers pounds 10m of cover, which will pay out for unfair dismissal, racial and sexual discrimination or harassment claims. This extra cover is relatively inexpensive.

Norman Insurance offers a combined home and office policy, ranging from pounds 40 to pounds 150 depending on the where you live and what work you do. Considering the average contents policy in the UK is pounds 100 a year, this is only a marginal increase. The Tolson Messenger home-business scheme covers pounds 7,500 of business equipment plus liabilities for pounds 125.

In fact insurers tend to look favourably on home workers as they know that the vast majority are not likely to be involved in costly employment or liability disputes. And as most of them are at home in the day, the risk of theft is greatly reduced.

Insurers are quick to assure policy holders that their details will not be passed to the Inland Revenue, alerting the taxman to perhaps hitherto unknown self-employed earnings. But as Ian Jones, of Tolson Messenger, says: "If someone is dodging tax he is probably trying to cover his business on contents policy. Unfortunately he could be caught out on both."

qContacts: Norwich Union, 01603 622200; Commercial Union, 0171 283 7500; Norman Insurance, 0118 955 2222; Tolson Messenger, 0181 741 8361.

About the house

Most widespread jobs among home workers

Women:

writing/journalism 19%

sales & marketing 14%

secretarial 12%

training & recruitment 10%

Men:

professional consultancy 17%

IT communications 14%

sales & marketing 13%

writing/journalism 12%

Source: Norwich Union