“I work out of my home and have a homeowners’ policy. Won’t my homeowners’ policy cover my home based business exposures?”
What we can say with certainty is that homeowners’ policies are not designed to cover business exposures. While often they provide some minimal coverage, it is totally inadequate for most home based businesses.
Here are some areas where homeowners’ policies deal with business exposures.
- No coverage is provided for losses arising from employee exposures
- No coverage is provided for losses away from premises
- No coverage is provided for product liability exposures
- No evidence of any commercial insurance is provided by homeowners’ insurers
- Very limited coverage is provided for business property on premises and even less is provided away from premises.
- If you operate out of a detached outbuilding, a garage for example, you’ll lose the coverage on that outbuilding because business use of a detached building voids coverage on the detached building.
Other problems that you’ll experience trying to rely upon your homeowners’ policy to provide business coverage is that any losses that are covered and are related to your business operations will count as a claim on your personal policy and you may cause your homeowners insurer to non-renew your policy.
If you have property related to your business that is hazardous such as chemicals or flammable liquids, hazardous machinery, etc. your insurer may choose to void your policy for increase of hazard.
Most homeowners’ policies have low limits of liability insurance. So if someone hurts themselves at your home while there for business you may find that your liability limit is insufficient under your homeowners’ policy.
Homeowners policies require that you declare your business operations to the insurer so they can decide whether the exposure is one they want to accept before providing insurance. If someone hasn’t done that and a loss occurs you may get an unwelcome surprise at claim time.
Homeowners policies typically don’t provide contractual liability coverage related to business exposures. So your business contracts that you sign which have contractual assumptions, from the lease on your computer or copier, to customer contracts and vendor contracts may all be uninsured.
Clearly the message to take away is that homeowners policies don’t adequately insure business exposures.
“If that’s the case why do they provide any coverage for business operations at all?”
The limited coverage Homeowners policies provide was designed for an employee who might bring some of the business personal property he uses in his business home at night. Also some people may teach painting or music out of their home and the homeowners policy is typically designed to cover minimal business exposures like that.