Running a Business from Your Home? Watch Out for These Business Insurance Coverage Gaps

Whether you’re an entrepreneur, dadpreneur, or mompreneur – more and more people are starting and running businesses from their homes on top of raising and caring for children. It’s a growing trend that’s powered by the convenience and cost savings of running a business out of the home.

Be it a franchise or a home-grown business, we’re seeing an increase in products such as make-up, leggings, cleaning products, essential oils, and more as a side gig or full-time enterprise.

If that sounds like you, you should know that if you’re running a business out of your home, there are some common business insurance coverage gaps in your home insurance policy that you might be unaware of—and that could leave you at risk for a preventable, unpayable insurance claim.

When you love insurance like we do, you think about this stuff. All the time.

Homeowner insurance policies have limitations

Between taking care of kids and starting and running a business at home, insurance can find a way of slipping through the cracks. Or, if you do think about insurance, you may assume your home insurance policy will cover everything you may need for your at-home business. But, is that really true?

You may be surprised to hear that many home insurance policies actually include a definition of what qualifies as a “business”. In one example, if your operation brings in more than $2,000 total compensation in a 12 month period you are considered a business. While that dollar threshold can change from policy to policy, the following statement remains true: if your operation is considered a business, and you are relying solely on your home insurance policy to cover your exposure, there are key limitations you must be aware of. Let’s take a look.

Tricky situations

For operations defined as a “business”, there are a few common situations where your home policy may not cover your at-home business: when you scale your business; when your business is liable for something; and when you store business inventory in a detached structure, like a shed. There can even be issues around overall eligibility for insurance. Let’s take a look at each one.

Gap #1: Lost inventory

It may have started out as a “little something to do”, but before you knew it, you were growing and scaling, and soon, your small, side job morphed into a real business…a real business that required real product. Suddenly, you were moving more inventory than you thought possible. Great news, unless something unexpected like a fire or a broken water pipe damages the inventory.

If you’re counting on your home policy to cover the loss, you may be disappointed, because personal policies often don’t cover those types of big budget business items.

Gap #2: Liability

Another area of concern is liability. Before you had an in-home business, you likely weren’t worrying about accidents and mishaps that could occur by having people coming in and out of your home all day.

But, as soon as you began that business, things changed. Those at-home parties took on an entirely different meaning when the reason those guests started coming to your house was to find something to buy from your wares. For example, if one of your guests is leaving a party in which you sold your product and they slip on the way out, that liability exposure may not be covered under your home insurance policy.

Gap #3: Detached structures

Your business selling handcrafted décor products for the home is doing great, and you’ve reached the point where you need to store the overflow of inventory in the shed behind your home. While this is certainly logical, storing business inventory in a shed or “detached structure” can have a large impact on your insurance coverage.

While detached structures are covered in your common home insurance policy, In the case of some policies, the moment that detached structure is used for business purposes it’s no longer covered. This is a big deal, because it’s an example of business inventory making a previously covered structure non-covered.

Gap #4: Eligibility

Suppose you find your business has taken off and the profits are rolling in. While this is fantastic, there are insurance implications that you need to be aware of.

As hard as it is to imagine, gross annual receipts and how often/how many customers come to your house can determine your eligibility for insurance. It’s true, your insurance company may opt not to insure you when it finds out what type of activity is going on in your home. The good news is that there are insurance companies willing to cover the exposure of a successful at-home business (at Clark, we already have these carrier relationships in place so we can work with you to make sure you’re fully coveredat Clark, we frequently represent our customers to have these exact conversations with the insurance companies).

The Takeaway

If you’re a mompreneur, dadpreneur, or just plain entrepreneur, it’s time to talk with your insurance agent about your business, if you haven’t already. Doing business out of your home may be convenient and low-cost, but if you’re not fully covered, you’re taking on potentially costly risk. The most common gaps in insurance are in lost inventory, lost income, liability, and eligibility. If you have any type of business at home – give us a call and we’ll make sure that you’re adequately covered.

About Clark Insurance

At Clark Insurance, you’ll find a whole bunch of people passionate about insurance who love helping others. We like to figure out what our customers really need and then find a solution they can afford. Best of all, we like seeing the looks on our customers’ faces when they realize they no longer have to worry about “what if.” Come speak with us. We’ll take care of your “what if.”