Throughout the year, Kasmann Insurance has focused our efforts on educating our clientele about commercial insurance. To wrap this year up, we would like to dedicate December to people who work from home. According to Global Entrepreneurship Monitor, more than two-thirds of businesses in the United States start from home, while more than 59% continue operating from home. Staying in the comfort of one’s home to earn a living may sound enticing, but it does come with risks.
When we discuss people who work from home, certain professions may immediately come to mind (e.g. home daycare providers, small cleaning services, music instructors, photographers, tax preparers, tailors, tutors, etc.). With modern advances in technology and communications, many other careers can be pursued from a home office like operating online stores, blogging about fashion or food, event planning, engineering, health care consulting, graphic designers, technical consulting, etc. Just as with any type of business operation, each risk must be evaluated on an individual basis to determine its loss exposures and the necessary property and liability coverages.
You have homeowners insurance, doesn’t that cover anything and everything you may do at your house? Homeowners insurance is designed to protect the individual who owns and occupies the home, along with his/her resident relatives, against losses to personal property or because of personal liability. Homeowners policies specifically exclude coverage for property or liability losses that arise due to the operation of any type of business.
Depending on a variety of factors (the type of business, ownership entity, annual income, how much floor space of the home it takes up, and how often customers visit the home), it may be possible to purchase “incidental” business coverages. An incidental business liability endorsement could extend the homeowner’s personal liability to the specific business operations approved by Underwriting; usually a minor exposure such as a bed & breakfast, hair styling, or music lessons. Some companies will even extend homeowner’s liability to cover a home daycare, as long as the homeowner does not care for more than a set number of unrelated children. Another thing to note is that homeowners policies typically cap business personal property on premises at $2,500, but you may be able to increase that limit to $5,000 for an additional charge.
There are several questions that must be answered before determining if business coverage under a homeowners policy is adequate, or whether commercial coverage should be purchased.
1) First and foremost, who owns the business? Only sole proprietors qualify for coverage under a homeowners policy. If you are a telecommuting employee for a company owned by someone else and have computers and/or other business equipment at your home, you would need to refer back to your employment contract to determine who is responsible for insuring the equipment.
2) Do you employ people other than family members? If you have employees other than household residents, you will need to purchase commercial insurance coverages.
3) Are there business signs posted at your home? Most municipalities would consider a business with posted signs as a commercial venue, requiring commercial zoning, a business license, etc. Insurance companies would likely have the same view and require commercial insurance coverage.
4) Do you use an outbuilding or detached structure to store business equipment or operate your business out of? Homeowners insurance excludes coverage for any structure used for business purposes, so this building would need to be insured as commercial property. Some insurance companies are unwilling to insure a home if there is also a commercial risk located on premises, while other companies may require the home AND business insurance both to be written through them. Companies that require both lines of insurance do so to avoid litigation, because with premises liability it is often difficult to determine where a personal exposure ends and a business exposure begins.
5) Do clients visit your home? Foot traffic increases the liability exposure for trip and fall claims and may require commercial liability depending on the type of foot traffic and how often it occurs.
6) How much business property is in the home? If your business has equipment or products that are less than $5,000 and do not leave the home premises, an extension of business property coverage under the home policy may be enough. If you are an artist and run an online website or Etsy shop and have several thousand dollars worth of supplies and/or completed products in your home, you would suffer a significant loss from a theft or fire and would need proper protection with commercial property coverage.
7) Is the business a major source of income? Loss of income can only be afforded under commercial property insurance.
The bottom line? In most situations, people who work from home yield more commercial risk than can typically be accommodated under homeowners insurance. Reach out to the Kasmann Insurance team for help determining how much commercial property and liability coverage your specific exposure needs. In addition, we can provide products and completed operations, as well as business income and extra expense coverages. Contact us with your business insurance questions today!