What Business Coverage Type Is Right?
By Linda Ziegler, Commercial Underwriting Consultant
Appropriate insurance coverage is important for businesses, and businesses owned by your insureds with homeowner and farmowner policies are no exception.
Homeowners and farmowners policies are designed to cover a person or family’s real and personal property and liability and/or farm operations. Unendorsed HO and FO policies generally do not cover the operation of a business. A business is usually considered to be:
- An activity the insured is doing out of their home that generates income
- An activity that transforms one or more things into something else that is then sold
Examples are:
- Canning and selling products at farmers markets
- Harvesting honey and selling it
- Babysitting for others
- Picking their own produce and selling it at roadside stands
- Cutting hair out of their home as a licensed beautician
- Doing alterations on wedding and bridesmaid dresses
- Owning a separate residence that is rented to others on VRBO
The Mutual Assistance team has created a tool to help you decide if and what kind of coverage can be provided. The available coverage options are incidental business pursuits, home based business and commercial programs.
Incidental Business Pursuits (IBP)
This business coverage option is designed for those who operate out of their home and have no other location. They are a sole proprietor and do not have any employees. The business owner does not do any processing or allow picking off the ground or by ladder. Also, they cannot earn more than $50,000 gross annual receipts.
Examples are:
- Warehousing: storage of boats, cars or RVs on the insured’s premises
- Babysitting
- Horse boarding
- Roadside markets on premises
- Pick-your-own operations, such as fruit or vegetables
- Sales of household products, cosmetics, and seed or fertilizer made by others: Amway, Mary Kay, Avon, or corn seed sales
Refer to the Liability Manual in the Personal Lines Underwriting section of the WRC website for complete details, limitations and forms. Coverage is provided by endorsing the existing HO or FO policy. The IBP endorsements vary depending on the program and type of business.
Home Based Business (HBB)
This option can be used in conjunction with the HO 2006 or 2008 editions and FO 1.0/2.0 editions only. Gross annual receipts may not exceed $250,000 and the business cannot have more than three employees (including family members who are volunteers).
The various operations may include:
- Office
- Service
- Retail
- Crafts
- Food
- Bed-and-breakfasts
The businesses must be conducted out of the primary residence described on the declarations. The insured cannot have any other business at a different permanent location under the same legal name.
Certain operations are not eligible, including:
- Installation services
- Child and adult care services
- Home health care
- Lawn care
- House cleaning
- Dog kennels, breeding, training or grooming
- Pet sitting
Refer to the Home Based Business tab under the Personal Lines Underwriting section of the WRC website for complete details. Form ML-450 2.0 should be attached to the policy. Premium charges will depend on the class of business, liability limits and if the insured requests any optional coverages.
Commercial Programs
If your risk doesn’t fit IBP or HBB, you can look to a commercial program for business coverage instead.
Note that if your insured owns habitational risks, the personal/farm programs limit exposure for up to eight units. If there are more than eight units, you must write the risk under a commercial policy. This will be a separate policy from their existing HO or FO and may cover property or property and liability for the business.
The All Commercial Eligibility Guide lists the commercial risk types that may be acceptable. This guide describes the operations that may fall under the Businessowners, Artisans or CGL programs. It also lists all commercial ineligible types. You can find the guide on the secure WRC website under Commercial Lines Underwriting/General Information.
If the risk is eligible under one of the commercial programs, you can look under the Commercial Lines Underwriting > Classification Underwriting Guides for additional information specific to that risk type. The Commercial section of the WRC website is organized by program type.
The WRC secure website has several tools available to help you decide if coverage can be placed and to identify the appropriate program. In the documents section, you will find information specifically for syrup manufacturing, home-sharing guidelines such as Airbnb or VRBO rentals, special events and many other types of risk.
Some insureds may need coverage that falls into a specialty or excess market or doesn’t fit into any of the coverages you offer. WRC Agency works with several carriers who may be able to quote those risks. You can contact WRC Agency at wrcagency@thewrcgroup.com.
Please reach out to your Mutual Assistance underwriting consultants with questions or comments.