Homeowners Insurance

The Truth about Homeowners’ Insurance

Many artists who own a home and have their studio in the home, an attached structure, or in another building on the same property, mistakenly believe that their homeowners’ insurance will cover their business property or their building if they suffer a loss.

Homeowners’ insurance rarely covers property used for business purposes. How do you know you are in business? Insurance companies define a business as any activity in which you accept money in return for goods or services. It does not matter if you do not have a business license, do not show a profit, or are trying to “fly under the radar.” If you sell something you make, you are in business.

Many homeowners’ insurance policies cover a small amount of business property, typically about $2,500.00 to cover a home office for people who spend part of their time working at home. It is intended to cover things like a computer, desk, and filing cabinets. Some companies sell special endorsements (riders) for in home businesses. Be sure to discuss this with your agent and be sure that they understand the size and nature of your business. If your operation is not to large or hazardous, you may also be able to buy an add-on supplemental policy with similar coverage to a Business Owner’s Policy (BOP).

Do not assume that the building in which your studio is located is covered, either. Operating a business in your home may violate the terms of your homeowners’ insurance policy, and in some cases may void your policy. Read your policy, and ask your insurance agent if you are covered (and get it in writing). If you are operating a business in a separate building on your property, the chances are very high that your homeowners' insurance will not pay to repair or replace that building - even if you have included its value in your insurance payments. By concealing the fact that you are operating a business in your home, you are only fooling yourself. CERF+ has seen many artists who learn after their studio has burned down that they have no coverage under their homeowners’ insurance policy.

Liability, liability, liability

Of even greater concern is that homeowners’ insurance does not cover liability for business activities, either away from your home or on premises. A typical business liability policy will follow you where you go such as to an art fair. Not only will a homeowner’s insurance policy not cover you away from home, if someone comes to your home to consider purchasing your work and falls on the steps, you will not be covered because this is considered business activity. That means that you are in liability limbo for the annual holiday studio tour!

Strategies for Covering a Home Business

You may find that that your current homeowners' insurance carrier has no appetite for home-based businesses, or that your particular business is beyond what they are willing to cover. As discouraging as that is, it is better to find out before you have to file a claim. You may need to shop around to other carriers, perhaps finding one that writes both business and homeowners' insurance.

If your business is in a completely separate building on your property, you can have that covered in a separate business owners plan (BOP) that covers the building, the contents, liability, and possibly other coverage options such as business continuity.
If you are working in hour home, basement, garage or attached studio, find out if your policy covers the building, even though you are operating a business there. If the agent says it is OK, ask him to write you a letter to that effect and be sure you have a copy in a safe offsite location (SOL). Many policies contain exclusions for concealment or dishonesty that could give companies grounds for excluding coverage. The less "industrial" your business is, the better your chances. If you are OK on the building, you can purchase a separate policy like those listed on this site to cover your business property, liability, and work in shipment, as well as other coverage common to a BOP.
If you cannot get coverage on your home because your business is located there, you may still be able to insure your home under a business insurance policy, along with your business property and liability coverage, and purchase renters insurance at a lower rate to cover your personal property.