What do publishers, authors, cosmetic salespeople (Avon, Mary Kay, etc.), and multi-level marketers have in common? Many of them have "in home" businesses. Bingo! You were right. Evidencing the increased numbers, 43 million (according to the Bureau of Labor statistics) "in home" business owners shed bathrobes for casual attire, merely shuffling from the kitchen to the office down the hall when they go to work. About 60% of these hardworking folks mistakenly rely on their traditional homeowner's or renter's policies for insurance protection or don't even give the matter a thought. Sadly, almost half of the "in home" business owners who have already experienced a claim or loss still lack the insurance they need to adequately protect themselves.

What basic coverage does the "in home" business need?

The basic insurance protection needed for "in home" businesses is property and liability coverage. Property coverage will protect the business owner's real property, dwelling, structures, and possessions against claims for theft, fire, water damage, and the like. Liability coverage insures against injuries or damage claims from business visitors, clients, and other parties. While homeowner's and renter's insurance policies are generally similar in coverage from one insurance company to the next, most fail miserably to provide all but a few basic insurance coverages for "in home" business owners. None address coverage for business liability-in or away from the home business location-or claims that may arise from loss of income.

Why and where do homeowner's and renter's policies fail "in home" businesses and what are the potential remedies?

(1) Residence, Dwelling, Real Property. With respect to the dwelling, residence, or real property itself, generally there is no problem just so long as the place is being used 50% or more of the time for residential purposes-or 50% or more of the square footage of the home is devoted to such purposes. If the residence or dwelling is used more than 50% for business, this would generally not be considered incidental use, and the home may not qualify for homeowner's insurance and a regular business owner's insurance policy is needed.(2) Detached Garage, Storage Sheds, and the Like. Because the majority of homeowner's and renter's insurance policies are very explicit in their intention not to provide any coverage for detached garages, storage sheds, and such, if they are used a little, a lot, or completely for business purposes, such storage of your business property can cause serious problems. The remedy is to ask your insurance agent to attach a special endorsement to your homeowner's policy called "Permitted Incidental Occupancies." (Endorsement number HO 04 42) This endorsement eliminates problems pertaining to business conducted on the residence premises, and provides for scheduling a specified amount of coverage for the detached garage, shed, or other structure that is used in a business. The other beneficial effect of this endorsement is that it automatically increases the coverage in the homeowner's policy for on-location business furnishings, supplies, and equipment from the $2,500 automatically provided in the policy, to the same limit of coverage as provided or selected in the homeowner's policy for Coverage C, Personal Property (usually 50% of the dwelling or residence insurance value shown in Coverage A, Dwelling). Yet another limited feature of this endorsement, that will be discussed further later in this article, is that it modifies the personal liability and medical payments exclusions in the homeowner's policy to apply to the "necessary and incidental business use of the residence premises," thus providing liability and medical payments protection "on premises only."(3) Other Coverage Issues. Homeowner's and renter's policies do not properly address such issues as money and crime insurance coverages, data processing equipment or computers, and the attendant storage of data. Most importantly, however, the coverage that you will need the most to continue your salary or income, to pay your bills, overhead, continuing expenses for your business-generally called "business income" or "business interruption" coverage-is not available as part of a homeowner's policy.(4) Liability Issues. The liability coverage provided by most homeowner's and renter's policies specifically excludes all claims or losses that arise from "business pursuits of the insured."Therefore, if you have any venture in your home, no matter how small or insignificant, that you operate with some degree of continuity and with the expectation of gain, your homeowner's or renter's policy does not provide any liability coverage whatsoever.

What can be done?

The fact of the matter is that there is no really perfect solution to the liability problem outside of a business liability insurance policy, or one of the new and increasingly popular special "In Home" Business Insurance Policies. So what's the matter with the endorsement, "Permitted Incidental Occupancies?" (Endorsement number HO 04 42) Well, as mentioned in the prior paragraph describing the limited liability coverage afforded by this endorsement, the coverage is confined solely to "on-premises" liability. There is no coverage for any claims that could arise away from the described residence, such as while delivering goods to a customer, or for the product you may be distributing, selling, manufacturing, or even giving away, or for a business meeting at a local restaurant, picking up a manuscript from your author's place of business, and similar claims that are pretty easy to imagine. You might say, "But my agent recommended another 'business pursuits' endorsement. (Endorsement number HO 24 71) Will this work?" No, it will not work. This is the coverage that should be added to your homeowner's or renter's policy that eliminates the liability exclusion for business pursuits if you work at home for someone else. Not yourself, or a business owned or financially controlled by you. If you are employed by a company and they allow you to work at home, this is the endorsement or coverage that you will need to properly protect yourself. The coverage offered by this endorsement is designed for employed salespeople, telecommuters, and the like.

So just what am I really telling you?

Let's face it, homeowner's and renter's polices were not designed for businesses. Even the most careful treatment by endorsement or other modification by skilled professionals really cannot bring the conventional coverages offered by most homeowner's insurance companies to an acceptable level for "in home" businesses. The answer is either to acquire a (commercial) business owner's property and business liability policy, or one of the new "home business insurance coverages." There are a multitude of different policies out there. Prices begin as low as $150 but escalate quickly depending of the coverages and limits of liability you need or select to protect your "in home" business. Some insurance companies are making these mini-policies or endorsements available as part of their homeowner's policies, and there are any number of stand-alone policies available. No matter which you acquire, be wary of those that limit liability protection to "on-premises" only. These are few and far between, but you need to make sure you understand what you're buying. Typically, "in home" business policies provide limited amounts of coverage for business property you own (inventory, furniture, computers, et cetera), property belonging to others that may be in your care or for which you are responsible, business property that you may have leased so long as there is a contract requiring you to insure it, and coverage for such things as valuable papers and manuscripts With business policies, coverage is often available for business income or business interruption as just described, and for extra expense or those extra out-of-pocket expenses you will most likely have when you experience a loss or claim. Effective business liability coverage is included (watch out for any "on-premises" limitation) and so is protection for premises operations, advertising injury, and the all important personal injury coverages such as libel, slander, invasion of privacy, wrongful eviction, and wrongful detention. Most importantly, these polices generally include coverage for your products and completed operations. Workers' Compensation & Employers Liability, Liability Insurance for Non-Owned Automobiles, Professional Liability, Malpractice or Errors and Omissions Coverage is generally not offered by these endorsements or policies, but a special endorsement crafted for the burgeoning home daycare business is readily available.

So what do you need to do?

Now that you are in the know, call your insurance agent or broker. Or if you'd like a guide to hold your hand wading through the quagmire, call the personal lines department at Argo Insurance Brokers. ©All rights reserved. Copies may be made only with permission.

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