The recent poor economic situation forced many folks to start up small businesses (part time or full time)
that are operated out of their home in order to generate more income and meet expenses.
Such businesses may be a consulting business of some sort, a tutoring service, a business in which you sell products,
a dog walking service, or a baby sitting or day care business for 2 or 3 children.
The “business area” might be in the house or a converted garage
or maybe another building.
If you operate a business out of your home, have you considered the insurance implications?
Let us look at a typical insurance policy to see what coverage you have, or do not have! The typical homeowners policy places a maximum limit, usually $2,500 although some policy forms have increased that limit to $5,000, on “property used primarily for business purposes” located in the home. If the “property used primarily for business purposes” is away from your home, such as in your vehicle, the limit is much lower, usually $500 with some policy forms now allowing $1,500. “Business data” such as paper or electronic records is excluded completely.
In many cases, these limits may well be adequate to cover any business items you may have in your home, such as office furniture, computers, printers, supplies, etc.
I have my office in a detached building at my home. How does my insurance affect this situation?
The typical policy does not insure a structure not attached to the dwelling “from which any business is conducted” nor “other structures used to store business property”. Thus your converted garage not attached to the dwelling and now used as an office is not covered. Nor is the storage shed in the back yard that is used to store business inventory!!
Does my policy provide any liability coverage for my business?
The liability section of the common homeowners policy is far more restrictive! A typical wording is this: The liability part of the policy does not apply to “bodily injury or property damage arising out of or in connection with a business conducted from an insured location or engaged in by an insured…”. Thus you really have no liability insurance at all for your in-home business!! And the homeowners policy specifically excludes professional liability.
(Note, this liability exclusion usually does not apply to someone under the age of 21. Thus the policy would cover your child who babysits, walks dogs, or delivers newspapers, for example.)
The most important coverage any business needs is liability insurance. Most business can afford the loss of say $1,300 worth of equipment lost in a fire but few businesses can survive a $250,000 law suit!
How do I solve this insurance dilemma?
Some insurance companies do allow in-home business coverage (albeit very restrictive coverage) to be added to the policy for certain types of businesses. These are usually the ones where no clients come to your home. Other companies will issue a stand-alone In-Home Business policy that will cover many different types of businesses for property and liability. In cases of the more hazardous types of business, a day care for example, special commercial general liability policies may be required.
Bottom line is that a homeowners policy is definitely not the tool needed to insure a business operated out of the home.
As always, be sure you read your policy and discuss your needs with your insurance agent. An independent agency like C. T. Lowndes & Company has far more flexibility in finding you the correct coverage.
Henry Lowndes Jr.