People who run small businesses out of their homes often mistakenly think that their home insurance policies cover their business activities. As explained by Miranda at Financial Highway this is usually not the case. My own experience with home insurance was much worse than the picture Miranda paints.
I used to run a one-man consulting business. The only things I needed for the business were a computer, some space in my files for papers, and some desk space. I never even had any clients in my home. Even so, I thought it would be best to contact my insurance company to make sure I was properly covered. I also inquired about professional liability insurance for my business dealings.
The insurance company took all the information, went away for a long time, and finally came back to say that they wouldn’t offer me professional liability insurance and further they were dropping me for home insurance! They didn’t care that I had nothing in my home that would matter to my business if it were destroyed.
The only explanation I was able to extract was that if I had some bad business dealings, a client might try to sue the insurance company. Why one of my clients would try to sue my home insurance company is beyond me.
All this might make people with home businesses think that they had better not tell their home insurance company about the business. However, if something big happens such as the house burning down, the insurance company will investigate looking for reasons to deny the claim. Finding a home-based business would be a great reason for denying a claim.
Similar happened to us. We started with a small business package from our home insurance provider. That was dropped in 1999 (didn't want the Y2K exposure since we are computer consultants.)
ReplyDeleteWe self insured from that point until 2005 when our home insurance company wanted the name of our business insurance provider. Without one, we'd lose the house insurance (a risk I wasn't about to take.) It took 8 weeks to find someone to write us a policy and we spend over $5K a year on it.
The alternative was to move the business to another site or shut it down so I guess $5K is reasonable compared to those options. But insurance is our biggest expense after payroll expenses.
@Kate: I wish I understood better why house insurance companies are nervous about home consulting businesses. If you are actually building products or seeing clients in the home then that's one thing, but if you're just sitting writing software it's hard to see why the home insurance company is exposed.
ReplyDeleteOur clients are overseas and in the US. In the US, litigation has held the home insurance company responsible for the actions of the business located in a home. So I suppose the courts are to blame for the situation.
ReplyDeleteEven with good business insurance, our broker has only been able to find one company that will insure the house.
We thought being federally incorporated would be sufficient to stop liability against our personal possessions but the insurance companies disagree. At one point we looked to rent office space in our village for the company since landlords of office buildings aren't sued when their tenants are sued. But it was cheaper to just pay insurance.
Thanks for the info. It never occurred to me that I would have problems with my house insurance because I run a home business.
ReplyDeleteNot sure what I should do now.
Mike
@Mike: I'm not too sure what you should do either. It seems ridiculous to have to buy error and omissions insurance for a business just to be able to buy insurance in case your house burns down.
ReplyDelete