Millions of Americans conduct business or money-making activities out of their residence, whether it be in-home day care, remotely working from home, part or full time repair, crafts or woodworking, multi-level marketing, music or dance lessons, manufacturing, various types of service, art or photography studios, pet care, product distribution or online commerce.
Not everyone is aware that many of these activities can have a significant effect on your Homeowners insurance. In this post, I’ll go over some of the issues to watch out for if you conduct business activities from home.
Believe it or not, many types of home-based businesses may mean your Homeowners insurance carrier just doesn’t want to insure you at all. If your business involves other people coming onto your premises or if you manufacture or repair products, it may be much harder to buy or keep a Homeowners policy.
In general terms, Homeowners insurance is intended for private, residential use of a home only. Insurance carriers believe that many types of business activities substantially change the type of risks that you might have, and they don’t believe these risks can properly be addressed by a residential policy. Therefore you might actually have to get a commercial policy to insure your home. Or a Homeowners carrier might agree to provide coverage only if you prove that you have another business insurance policy in place.
Some kinds of low-risk business activities are often acceptable. If you work online from a home office with no client traffic, this is usually acceptable. Or if you teach part time out of your home (such as music lessons or private tutoring), this will often be allowed with a small charge for the increased risk.
It is very important to understand that your Homeowners carrier normally won’t provide any liability coverage for any business activities on your premises, except in rare cases where they have agreed to add coverage for an additional premium.
So if a client, co-worker or vendor is hurt on your premises, you should fully expect your Homeowners carrier to deny the claim. Some examples include a client slipping and falling on your front steps, your dog biting a co-worker or an accident involving a child you are being paid to care for. Beyond basic bodily injury, businesses face many other liability exposures that can only be covered by a business insurance policy.
If you operate a business out of your house, this won’t affect how your dwelling is covered by most policies. However, watch out if you use an outbuilding for business. While you may believe or even been told that your detached garage or shop is covered, the moment you begin using it for business, your policy’s fine print likely states that coverage no longer applies.
Most (if not all), Homeowners policies contain standard language clearly stating that a structure used in whole or part for business is not covered. Even if the structure is individually listed on your policy for an amount of coverage, you cannot expect the structure to be covered if used for business, unless your policy specifically permits the business use.
One exception is that many policies will cover outbuildings where you are storing non-hazardous business property, as long as no other business activities are going on in the building.
So, how do you get coverage for an outbuilding that you use for business? Some Homeowners carriers may let you buy a special business insurance add-on that will cover the building, depending on your type of business. Otherwise, your only option may be a commercial insurance policy for that building.
Another area of concern is whether property you use in your business is covered. This could be your computer equipment, tools used in your woodworking shop, product inventory, items you are repairing or manufacturing, your photography equipment, etc. Most Homeowners policies provide a small amount of coverage for business property, often limiting coverage to a couple thousand dollars for things on your premises and a few hundred dollars off premises.
If these limits are not sufficient to cover your business property, some carriers may allow you to buy higher amounts, depending on whether they are comfortable with your home business. In other cases, you may have to buy a separate commercial insurance policy to cover your property.
What is a business?
Because the coverage restrictions for a business can be so extreme, it is important to understand what your Homeowners insurance policy considers to be a business. For this, you really need to read your insurance policy’s definition for the word “business”.
While this definition varies from policy to policy, one standard policy* states that a business is a trade, profession or occupation engaged in one a full-time, part-time or occasional basis. This policy further states that a business is also any other activity generating more than $2000 in annual gross income, with a few minor exceptions. (Please note that the definition cited above is for one specific policy, and your policy’s wording may be different.)
As you can see, the insurance issues for a home business can be quite complex and significant. If you have a home business, we strongly encourage you to seek the help of an experienced, professional insurance agent. If I can be of any assistance or answer any questions, give me a call.
The information provided in this post is generalized summary only. Because policy terms and conditions vary from carrier to carrier, it is important to read your policy carefully.
*Citing ISO’s HO 00 03 10 00 policy form.
About the Author
Agent Ken Cobb
Ken is the owner and principal agent at Pine Country Insurance in Bemidji. Active in the insurance industry since 2000,Ken uses his years of personal insurance knowledge and experience to assist clients in customizing insurance coverage to fit their needs. Ken considers himself a "farmer" rather than a "hunter"; rather than focusing on writing a lot of new policies as quickly as possible, he works on cultivating long term relationships based on trust with his clients. When writing new policies and meeting for annual reviews, Ken spends time with his clients explaining and helping them understand their insurance, and he is also pleased to share his knowledge with his blogging audience as well.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.