Whether you’re an entrepreneur or mompreneur, more and more are starting to run their new businesses from the comfort of their homes, on top of raising and taking care of their kids. It’s a growing trend that includes the convenience and cost-savings of running your business from home. We’ve seen an increase in at-home businesses such as makeup, leggings, cleaning products, essential oils, Etsy shops, side gigs, or full-time operations.
If this sounds like you, you should be aware of some common insurance coverage gaps that your home or auto policy might not cover. Moreover, leaving you at risk for a (preventable) insurance claim if running a business from home.
Home insurance policies have limitations
Don’t let your insurance slip through the cracks when running a business at home. You may assume that your home insurance policy will cover everything you’ll need for your at-home business. That’s not always the case.
Many home policies have a definition included of what qualifies as a “business.” For example, if your at-home business brings in more than $2,000 in a 12-month period, you are considered a business. While that amount can change, depending on your policy, the following statement is true:
“If your operation is considered a business, you are relying solely on your home insurance policy to cover your exposure. There are key limitations you must be aware of.”
Let’s review these limitations:
Business from Home: Tricky situations
If defined as a “business,” there are some situations where your home policy might not cover you: the scale of your business, when your business is liable, and where you store your business’s inventory (like a shed in the backyard or a detached structure). These can prove to be an issue for eligibility for insurance. Let’s review each one.
Gap #1: Lost inventory
Your at-home business may have started out as a “little something to do.” Before you know it, it has grown and your side job is now morphing into a real business. A real business that requires products and inventory. As you move more inventory, you risk something expected, like a fire or a broken pile damaging your inventory. Unfortunately, because personal home policies don’t often cover those types of large-budge business items, your home policy might not cover the loss.
Gap #2: Liability
A new concern for your at-home business is a liability. Before your company, you weren’t worried about accidents that can occur by having people coming in and out of your home now. But now, as you host your essential oils party, you’re now having guests coming to your house more often. For example, a guest leaves your house after a party in which they slipped and fell on the front step. The liability exposure won’t be covered under your home insurance policy.
Gap #3: Detached structures
You sell handcrafted décor products on Etsy and it is doing great. You’ve reached a point where you need to store the extra inventory in a storage shed out in your backyard. While this is a logical storage idea, having your inventory in a ‘detached structure’ can largely impact your insurance coverage.
A detached structure is covered in a common home insurance policy, it is not covered in the case the structure is used for business purposes.
Gap #4: Eligibility
As your business grows even further, profits are now rolling in. There are some insurance implications that you need to be aware of. Do you know gross annual receipts? Did you know how many/often your customers come to visit your home determines your eligibility for insurance? Your insurance carrier may opt to not to cover you when it finds out what type(s) of activities are occurring in your house.
The good news is that we have relationships with over 26+ carriers. We can work with you and the insurance carrier to make sure you’re covered.
Once you decide to start an at-home business, take the time and contact your Hertvik Insurance agent and we’ll make sure that you’re covered.