We see the ads all the time: “Earn millions working from home!” or “How would you like to double your income working from home?”
Although these ads are often too good to be true, the truth is that millions of people, in fact, do work from home. According to Incfile, there are 38 million home-based businesses in the US in 2017. All of these businesses have one thing in common: they have business liability exposures. And what many likely don’t realize is that their homeowner’s insurance almost certainly will not provide coverage should the business be sued – that required business insurance.
Business is defined by the insurance industry in most policies as “a trade, profession, occupation, or any other activity engaged in for money or other compensation”.
Business Property Loss
Homeowners policies are not designed to cover businesses, either from lawsuits or from business property loss or damage. In fact, using your home for business purposes can actually keep your homeowner’s insurance from covering things which would otherwise have been covered, eliminating coverage that you would otherwise normally have on your homeowner’s policy. For example, if you have a detached garage or a shed (an “Other Structure” on your homeowner’s policy) that you operate the business out of, or if you even just store some business property in it, that may actually exclude coverage for that “other structure” on your policy.
True, most policies do provide some insurance coverage for business property. But it is extremely limited: usually not more than $2500 and sometimes as little as $500. And that home insurance limitation for business property is not just for a home-based business. It is on ANY business property. If you operate a business at an office building, but you bring home business property to work on at home, or to prepare to deliver, the limitation still applies. Even if you also use the business property personally, the limitation will still apply. A perfect example of this is a contractor who also uses his/her tools to fix things around his/her home. If those tools are used AT ALL in the business, they are business property.
As far as liability goes, homeowner’s insurance really doesn’t cover the business at all. If the business is sued, your homeowner’s insurance policy will not respond. There are a handful of exceptions made to this, most notably a child’s summer mowing service, but even these may run into issues. It will be up to your business to cover any costs of responding to the lawsuit and to pay any money awarded by the lawsuit against the business. Depending on how your business is structured, this may mean paying for these expenses out of your own pocket, possibly for years to come!
How to Prepare for Business Liability
So, what should you do if there is a business running out of your home, or you have business property you thought would be covered under your homeowner’s policy? In many cases, a Business Owner’s Insurance Policy will be the best course of action. In a few cases, you may be able to get coverage on your homeowner’s policy. But this will need to be added. It is not automatic.