A home office can be a wonderful thing, sipping your morning coffee and deleting pesky emails while still wearing your PJs and fuzzy slippers.
But if you have a home office, insurance becomes an important consideration.
You’ll need a way to protect your business equipment, but you may also need a way to insure against business-related liability risks, which can be much costlier if you don’t have coverage.
Home Insurance Might Not Cover Your Home Office
Homeowners insurance companies are all business, but that doesn’t mean they’re always home-office friendly. A standard home policy places significant restrictions on business-related claims, and some types of losses aren’t covered at all.
For easy comparison in this article, we’ll examine the coverage provided for business risks by a standard HO-3 homeowners insurance policy and an HO-4 renters insurance policy. Individual insurers may use their own variations of these standard policies developed by the Insurance Services Office (ISO). However, most insurers tend to follow the standard insurance forms closely.
Both policy types approach business risks similarly.
Home Office Insurance: Personal Property
Your home insurance policy provides coverage for personal property, your personal belongings. If your computer and office equipment are owned by you as opposed to being owned by your business, you might find some coverage for your office equipment and furnishings. But the coverage limitations might surprise you.
A typical home insurance policy only provides up to $2,500 of coverage for business property. Some insurers provide an option to double the coverage amount to $5,000. But in both cases, the operative words are “up to,” meaning the coverage is predicated on your actual loss and capped by the limit.
Personal property is usually covered for actual cash value (ACV). Actual cash value is an adjusted value based on wear and tear due to age. This means your equipment began depreciating in terms of insured value as soon as you opened the box.
Again, some insurers offer an option to cover your property at full replacement cost. As the name suggests, replacement cost coverage pays the amount required to replace the item at today’s prices.
Addons or upgrades such as the ability to insure for full replacement cost are called endorsements. A standard HO-3 or HO-4 policy provides ACV coverage for personal property, and coverage for business equipment typically follows the same pattern.
Here’s an example of how coverage might apply. Imagine that faulty wiring causes a fire in your home, damaging your home office. Your home insurance policy will pay to repair damage to your home itself, but coverage for your business computer and other business equipment is limited.
With an unendorsed policy, your coverage for business equipment is limited to $2,500 with most insurers. A high-end business laptop alone can cost up to $3,000 to replace, and an office fire will likely affect more than just the computer. A damaged smartphone can cost $1,000 or more to replace. A combined loss of $4,000 with just these two items would leave a coverage gap of $1,500.
If you’ve invested a significant amount in your home office and equipment, check your coverage with your agent to see if any adjustments are needed. Depending on the value of your business equipment, it may be prudent to increase your coverage limit for business equipment using an endorsement or perhaps even consider a dedicated business policy.
Home Office Insurance: Personal Liability
Liability refers to our financial responsibility for losses suffered by others due to our actions or inactions.
As an example, if a snowstorm causes ice and someone slips and falls on the ice on your sidewalk two days after the storm, you may be liable for the cost of that person’s injuries. In this example, inaction is the cause of the injuries because the ice remained on the sidewalk for two days, creating a hazard.
Most home insurance policies provide at least $100,000 in personal liability coverage, and many policies offer $300,000 or more in coverage.
That’s not a bad start, but it’s likely that the coverage won’t extend to business-related activities. Slip and fall mishaps or other accidental injuries are usually covered by a home policy, even if the mishap takes place elsewhere.
However, your home policy’s protection may not apply if the loss involves business risk. In the above example, if the person injured on the icy sidewalk was visiting your home as a client, the insurer would see the risk as business-related, likely denying coverage for the loss.
A potential loss of office equipment is small relative to the risk of a liability lawsuit, which can range from an injury to a cyber breach. Often, the stakes are high.
Some insurers offer a rider (an add-on) that extends limited liability coverage for businesses that have relatively few visitors, like writers. But each business faces unique risks, and many types of business-related risks won’t be covered by a home policy at all.
A better approach is to evaluate coverage options that address the specific needs of your business. For some, that may mean purchasing a dedicated business insurance policy.
Home Office Insurance And Home Business Options
Depending on the type of business activity that takes place in your home office, you have some additional options to provide the coverage you need. In some cases, you may be able to address your risks with some simple changes to your existing home insurance policy. Add-ons to an existing policy are called riders or endorsements.
However, depending on the risks specific to your business activity, it may be prudent to add other policies that provide better protection for your situation.
- In-Home Business Policy: An in-home business policy is a step up from home insurance coverage patched with riders. Additional coverages can include broader liability coverage, off-site business property coverage, and loss of use, the last of which pays for a temporary working space if a covered claim leaves your home office unusable. An in-home policy, although not available from all insurers, offers an effective solution to home office insurance concerns.
- Businessowners Policy (BOP): A BOP is another step up from the lower levels of coverage offered by other solutions. You can think of aBOP as a solid foundation to build a full-coverage solution as your business grows. Business owners policies combine business property insurance with general liability insurance. Premium costs are usually based on revenue, so a smaller business with less risk will pay less. Additional policies can be added if you need specialized coverage.
- Professional Liability Insurance: If you work as a service provider, it’s also wise to consider professional liability coverage. Also known as errors and omissions (E&O) insurance, professional liability insurance safeguards against losses suffered by clients due to mistakes or oversights. This type of liability is not covered by your home policy or a standard business liability insurance policy. Accountants, consultants, and writers are all examples of professionals that can benefit from E&O insurance.
A dedicated business policy gives you more focused protection compared to addressing home office insurance concerns with a home or renters policy. A dedicated policy or package also allows you to insure against risks that a home policy doesn’t cover completely or may not cover at all. As another advantage, business policies usually offer higher coverage limits compared to off-the-shelf home policies.
Choosing the Best Home Office Insurance
Your trusted agent is your starting point to understanding the coverage you have relative to the risks that result from your business activity. However, if you need to step up the coverage to another type of policy, it’s smart to compare quotes from multiple providers.
Depending on your needs and unique risks, you may even need to consider additional providers. The insurer you use for your home or auto coverage might not be the best choice for home office insurance in every situation.