What are the insurance implications of a home based business?
Have a Home Based Business?
Is it Properly Insured?
It seems like everyone has a home based business these days, from LuLaRoe, Tastefully Simply, Pampered Chef, Avon and making crafts or jewelry, Now that you have this home based business you need to think about how it will affect your insurance coverage. You have a homeowner’s insurance policy, so you are good right? No. A homeowner’s insurance policy is not designed to cover business activity and they have specific exclusions that pertain to businesses. In most cases, the home insurance policy uses $2,000 of income (not profit) in determining if something is a hobby or a business. You could exceed $2,000 just from having a yard sale at your home. The homeowner’s insurance policy has generally made available coverage for volunteer activities or for typically teenager jobs, such as babysitting or newspaper delivery. But generally speaking your home insurance policy is not providing any liability insurance coverage for your home based business.
I commonly hear from people, that the franchise is providing liability insurance coverage. Well, that is somewhat correct. Usually the franchise is picking up the product liability. For example, if you sell Mary Kay and the client uses the Mary Kay product and has a reaction and sues you and Mary Kay. May Kay will defend you as well as them. However, if you are at the customer’s home doing a demonstration and you knock over a vase, or spill water all over their hard wood floors while giving a pedicure, that would not be covered by the franchise. You may assume that you are not covered off premises for the business, but at your home, you would be covered by the homeowners insurance. Not true for liability. If I come to your home to pick up my “Scentsy” order and fall down the ice covered steps, there is no coverage under a typical homeowner’s insurance policy because I was there for business.
Also, when it comes to the property insurance coverage of your homeowner’s policy, there are limitations. If you are using another structure on the property to store merchandise, or to run your pop up store or to manufacturer your crafts, not only is there no liability coverage AND the other structure itself is not covered by the homeowner’s policy since it is being used in whole or part for business. Plus, your stock, inventory and equipment are typically insured for $2,500 on premises and $250 off premises. So you have a computer that you use at your home, to play games on, pay household bills, and then also use it to conduct the business for your online Etsy store. Since this computer is sometimes used for business, it would be adjusted as business personal property at the time of a loss. Any item, that is used even partially for business is automatically considered business personal property.
So what do you do if you have a part time home based business? You need to purchase an in-home business insurance policy to give you the broadest coverage. The in- home business policy can give you the coverage you need for your business personal property, and coverage for the other structure, liability coverage both at the home and off premises, like customer’s homes, or trade shows, and will even give provide business income coverage, in the event there was a covered loss at your home, like a fire, and you could not operate your business. There are some endorsements that can be added to the homeowner’s policy, but generally speaking for the $150-200 a year the in-home business policy is the most economical and broadest coverage that you can purchase.
Nancy Nicklow is the owner President of Huff Insurance,a full service Independent Insurance Agent We have been dedicated to Protecting Lifestyles™ since 1960. We offer a full array of Personal Insurance, Commercial Insurance and Life Insurance products. Call us at 410-647-1111