Understanding Home Business Coverage with Home Insurance

By: Tracy Myers

If you are you considering running your own home-based business, you are not alone. With the advent of the digital economy and the ease with which commerce can be conducted outside the confines of traditional offices, there has been a boom in home businesses. The U.S. Bureau of Labor Statistics estimates that 3 out of 10 homeowners are running a home-based business. Unfortunately, not all of these homeowners and business people realize their home insurance policy does not adequately cover their business operations.

For a long time, traditional home insurance policies excluded virtually all coverage for business related operations. The basic principle of insurance policies was to avoid overlaps in coverage from one policy to the next. Therefore, if business owner’s policies covered first party property and liability, the homeowner’s insurance policy would be explicit in its exclusions for the same coverage. This method eliminated confusion and inefficiency in providing coverage to insureds. However, with the Internet and other technological changes, it’s become much more commonplace to operate a high-functioning business out of one’s home. This evolution has created a need that did not previously exist and insurance policies have been modified in response.

In many home insurance policies, there is now coverage for a limited amount of personal property intended for use in a business while at the residence. There is also a smaller limit of coverage for business property when it’s away from the residence. While this coverage is a nice benefit of the home insurance policy, the basic limit may not be sufficient to cover all of your needs. Additionally, your computer equipment is often excluded from this coverage. With home-based businesses, the computer equipment is often the most crucial component, and a loss would deal the business a devastating blow.

In addition, unlike the first party property coverage, the personal liability portion of your home insurance policy is usually very specific to exclude liability arising out of the business pursuits of the insured. The policies are very clear on this point because the liability brought on by a business is significantly greater and different than the personal liability faced by a regular homeowner.

What has become commonplace is for home insurance insurers to offer an option to insure a certain level of business operations within the home insurance policy. In the past, small business owners were generally forced to buy a Business Owners Policy (BOP) that was a package of various coverages for the small business owner. For a home-based business with minimal exposure, this was often cost-prohibitive. Now, with the option to add certain business-related coverages to the home insurance policy, the insurance industry has created a much more effective way to insure home-based businesses.

In any case, before you start your home-based business, review your home insurance policy to understand exactly what coverage is provided and then investigate the alternatives to add necessary coverages. Your first stop should be to check with your current insurer for add-ons to your existing policy. If your business operation grows, it may be time to consider a BOP. The state of Washington’s Insurance Commissioner provides a good checklist of coverages you should consider for your home business, regardless of what state you reside in. Whatever you decide, do not make the assumption that your home insurance policy will cover all of your business’ needs.

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