You’ve no doubt heard the stories of big businesses that were started in someone’s garage. Windows, Apple, Hewlett Packard, Disney and many other companies began with an idea and started out as a home-based business.
Could the next big idea come from your garage or dedicated home office space? It’s possible. While you’re building that dream, sometimes things happen along the way, and your home office or workspace could be damaged.
Will your homeowners or renters insurance respond? The short answer is: no. Here is the lowdown on what your homeowners policy won’t cover, and how to protect yourself if you have a home-based business, or even if you just work from home.
Your Homeowners Policy Won’t Cover You
The Insurance Services Office (ISO) standard policy Homeowners 3 – Special Form (HO3) is used as the basis for most homeowners coverage. Not all insurance companies use this exact form, so it is best to read your policy and talk to your broker.
The HO3 defines business as “a trade, profession or occupation engaged in on a full-time, part-time or occasional basis” or “any other activity engaged in for money or other compensation”. Your homeowners insurance policy is designed to cover your home, your personal items and your personal liability. It was not designed to cover business pursuits, and in fact excludes operations out of the home related to business.
Other Structures: Coverage is excluded for other structures “from which business is conducted”. If you run your business out of the shed or garage, there is no coverage.
Business Property: There may be some very limited coverage for business items and electronics used primarily in business, but that won’t cover any specialized equipment that may be used for your business. Business data is specifically excluded.
Credit Card Use: If your customers pay by credit card, there is no coverage “for loss arising out of ‘business’ use.”
Liability: The liability section of the homeowners policy is for personal use only and does not contemplate business operations for premises liability, products liability, libel, slander, etc.
Medical Payments: There is no coverage for bodily injury or property damage in connection with any business conducted at an insured location.
Professional Services: These are specifically excluded under the policy.
Damage To Property Of Others: This is specifically excluded under the policy if it arises out of any business engaged in by the insured.
There simply isn’t any coverage under the homeowners insurance policy. Undisclosed business operations may even result in the cancellation of your homeowners insurance policy. Check your policy and discuss your options with your broker.
Your Employees Won’t Be Covered
The HO3 form defines two different types of employees:
Employee: an employee of an “insured”, or an employee leased to an “insured” by a labor leasing firm…whose duties are other than those performed by a “residence employee”.
Residence Employee: an employee of an “insured”…whose duties are related to the maintenance or use of the “residence premises” including household or domestic services…not related to the “business” of an “insured”.
While there is some very limited coverage for “residence employees” (and with some companies, no coverage at all) in the HO3, there is no coverage for employees of a home-based business. There is no coverage for their personal property, their business property or for Workers Compensation.
Depending on the location of your business, you may be required to purchase Workers Compensation coverage for your employees. In the state of California, employers must provide Workers Compensation coverage even if there is only one employee. Failure to provide Workers Compensation insurance in the state of California is considered a criminal offense punishable by fine and/or imprisonment.
There Is Coverage Available
While your homeowners policy won’t cover your business, some riders may be available to extend coverage for business operations and business equipment under your policy. If these endorsements are available, coverage may still be limited.
To be sure that your business is fully covered, you should considering purchasing a Business Owners Policy (BOP). BOPs cover liability and property insurance for many common main-street businesses from beauty salons to bookkeeping, architects, tutoring, yoga instruction, consulting services and more. Please note that professional liability, automobile liability and Workers Compensation may not be included in a BOP and would need to be insured separately.
If your business doesn’t qualify for a BOP, other types of policies are available to secure the coverage you need. Talk to your insurance broker about your home-based business. Commercial insurance for your business can protect not only your livelihood, but also your family’s financial future.