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Is your home office covered by your homeowners insurance?

By January 9, 2015July 3rd, 2023Information, Insurance

Are you an entrepreneur running a home-based business? Do you sell products to make extra income? If so, you should look into your homeowners insurance policy to avoid coverage gaps.

Most homeowners policies limit the amount of coverage available for property on the insured premises used primarily for business purposes. The Insurance Services Office (ISO), which collects statistical data, provides rating information and develops standard policy forms, provides $2,500 for business property on the premises and $500 for business property away from the residence premises. If you add up the cost of your computer, printer, fax and scanner, modem and router, telephone system, desk filing cabinets, office supplies and software, you would easily exceed $2,500.

You need to ask yourself how much would you lose if your home office is completely destroyed by fire or your home office is flooded.

If you operate your business out of your garage or barn, you’ll need coverage for “other structures.” Homeowners policies vary in what coverage they provide for such structures, depending on whether they are used for storage of business property or actively used to conduct business.

The ISO homeowners form 2011 excludes any activities “engaged in for money” for which you don’t earn more than $2,000 in the 12-months preceding the policy period from the definition of “business.” This limitation puts most home-based business owners within the “trade, profession or occupation engaged in on a full, part-time or occasional category” and so without coverage.

There are potential aps in coverage, depending on the business, which may include liability from a violation of any intellectual property laws, infringement of a copyright or trademark for anything on a Web site, errors and omissions exposures, or employers’ liability and workers’ compensation. In some situations, you may need coverage – for example, professional liability insurance for auctioneers, attorneys, accountants, etc.

Home-based business owners need to confirm whether their homeowners insurance policy covers accidents or injuries that occur at work – that is, at their home. For example, are you liable for injury to a package delivery person who slips and falls on your icy sidewalk while walking to your front door with a work-related package? Depending on the terms and conditions of your policy, the answer might be yes. If your policy doesn’t cover the injury, you’ll be paying out of pocket.

What would happen if you couldn’t work out of your home office because of a fire or flood or you have no power for several days because of an ice storm? You would have no coverage for the loss of your business income without a businessowners or commercial policy with business interruption coverage. If your business takes over your home to the point at which you’ve converted all the rooms to offices and moved to another residence, then you’ll definitely need commercial coverage.

Remember that your home-based business is attached to your homeowners coverage and is subject to the same exclusions. If your home isn’t covered by flood insurance, neither is your business.

If you repair computers or furniture for customers at your home, you need to ask your insurance broker whether damage to the customer’s property is covered. If so, you should ask how the value of the property is calculated and how any potential loss will be settled.

If you telecommute or work remotely for an employer, the insurance issues for a home office are complicated. For example, you may be covered under your homeowners policy for property you own, such as your desk and filing cabinets, but your employer may be covered for loss to company-owned property such as a computer or smartphone. If a delivery person slips on icy steps at your home while making a business-related delivery in this situation, your employer’s policy might cover, your homeowners policy might cover or you could find yourself in the middle between the two carriers, both of which may initially deny the claim.

If you do work remotely, be sure to check your homeowners policy and ask your employer to confirm the terms and conditions of its policies, or you may find that neither policy covers a loss.

If you have a home-based business, talk to your insurance agent to see if you have coverage under your homeowners policy.  If not or if it has gaps, ask if it can be added or see if you need separate business insurance.  Now is the time to ask, not after you have a loss.