
Working out of the home has been a part of American culture for generations. The popularity and success of this business model has grown over time and the realities of a global pandemic made the idea of working from home much more appealing and accessible. Technology advancements have accelerated the ability to effectively work from home. Combined with reduced commuting expenses, better work/life balance and, let’s face it, the ability to work in cozy clothes have encouraged many entrepreneurs to look to build their own business from the comfort of their home.
Both full-time and part-time/occasional home
businesses are on the rise but no matter the scale of the business, it is critical to recognize the need for insurance and how to properly insure the venture. Home based businesses can run the gamut from a day care with neighborhood children operated by a stay-at-home mom to an international architectural consultant firm. Businesses are unique and so are their coverage needs.
HOMEOWNERS POLICY
Sometimes it is quite obvious when a commercial insurance policy is needed to protect a home-based business. However, for smaller businesses operated out of the home, and particularly those operated on a part-time or limited basis, many business owners assume that their homeowners policy provides the coverage they need. However, homeowners policies contain many business-related exclusions and limitations which may lead to coverage gaps for the business and business owner.
A homeowners policy can protect the owner’s property and provide protection against liability losses and lawsuits that arise out of business activities of the business owner on a very limited basis. Business owners need to be aware of the limitations and exclusions under their homeowners policy.
Limited coverage is available for business property of the insured under a standard issue homeowners policy:
A $2,500 limit applies to property used for business purposes while on the insured premises
$1,500 off the insured premises
A home crafter with inventory such as custom jewelry supplies as does a handyman with tools need to be aware of these limits. Exclusions related to business exposures in a homeowners policy expose the policyholder to coverage gaps. The following are among the exclusions related to business:
• Other structures from which an insured conducts a business
• Business data including data that is stored on various data
• Credit card, EFT, forgery and counterfeit money associated with a business
• Liability arising out of a business (other than one operated on a part-time occasional basis by an insured under the age of 21)
• Professional services
• Damage to property of others while in the care, custody or control of an insured
Endorsements Available
For small businesses, some additional coverage is available by endorsement:
|HO 04 12, Increased Limit On Business Property. This endorsement increases the $2,500 limit of liability for business property located on the residence premises by the amount shown up to $10,000.
| HO 24 71, Business Pursuits, can be used to expand liability coverage for business pursuits. This endorsement is geared toward occupational categories such as sales, clerical, and instructional. However, this endorsement expands coverage only for business pursuits associated with businesses not owned by the insured.
| HO 0442, Permitted Incidental Occupancies, can be used to expand coverage for both property and liability exposures associated with business activities. This endorsement provides broadened coverage for the business as described. The availability of this endorsement is subject to the underwriting rules of a company and is limited to small businesses in specific categories.
COMMERCIAL POLICY
When the options and coverages available under a homeowners policy are inadequate, a businessowners policy may be appropriate for home-based businesses. A businessowners policy can provide both property and liability
coverage including products and completed operations coverage. In addition, coverage for loss of business income and other coverages specifically designed to protect the small business owner are included.
Owners of home-based businesses may also require the following coverages:
• Commercial Auto – generally the personal auto policy will provide the necessary coverage. For certain risks such as one involving a commercial truck, a commercial auto policy is appropriate
• Workers' Compensation – if the business employs others, state statutes may require workers' compensation coverage
• Professional Liability – for businesses involving professional liability exposure, a professional liability policy is necessary
• Cyber Liability – regardless of the nature of the business, cyber liability exposures exist for your insureds
THE RIGHT COVERAGE FOR THE RISK
With the growth of home-based businesses, it is important that an insurance agent identifies the need for specific coverage to provide appropriate and adequate coverage for the policyholder. If the insured does have a home-based business, follow-up questions concerning the type of business, annual revenue, number of employees, business visitors to the home, manufacturing processes, and loss control measures are in order. If you ever have any questions about navigating home based business risks, contact your RMIC Underwriter!
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