Home-Based Business Endorsement or Commercial Policy?
By Haley Wulf, Account Manager
Home-based businesses are growing in popularity for a variety of reasons. Whether it is an insured’s primary source of income or just for extra spending money, there are exposures to consider that will not be covered by the insured’s standard homeowners policy or farmowners/general liability.
Business Definition
“Business” means:
- a trade, a profession or an occupation, including farming, all whether full time, part time, or occasional. This includes the rental of property to others, but does not include:
- the occasional rental for residential purposes of that part of the “described location” normally occupied solely by “your” household, or
- the rental or holding for rental of a portion of that part of the “described location” normally occupied by “your” household to no more than two roomers or boarders for use as a residence, or
- any other activity undertaken for money or other compensation, but this does not include:
- providing care services to a relative of an “insured”
- providing services for the care of persons who are not relatives of an “insured” and for which the only compensation is the mutual exchange of like services
- a volunteer activity for which:
- an “insured” receives no compensation, or
- an “insured’s” only compensation is the reimbursement of expenses incurred to carry out the activity, or
- an activity not described above for which no “insured’s” total compensation for the 12-month period just before the first day of this policy period was more than $2,500.
Reasons for Policy Changes
Why should the insured add a Home-Based Business Endorsement or a Commercial Policy? There are several reasons:
- Limitations and exclusions on HO and FO/GL policy forms on both property and liability
- Off-Premises Business Liability coverage is excluded from the HO and FO/GL policy
- Liability concerns from increased foot traffic
- Business Personal Property coverage limitations
Business Property Not Covered
Business property that isn’t covered on the HO or FO/GL includes:
- Coverage B does not cover: Any structure used, in whole or in part, for the direction or operation of a “business,” or used, in whole or in part, for the storage of “business” property
- Coverage C limitations on “business” property: $1,500 electronic devices and accessories used primarily for “business” purposes while away from “described location” and not in or on a “motorized vehicle” or watercraft, if the device can be operated from the electrical system of a “motorized vehicle” or watercraft and by any other source of power.
- Personal property used primarily for “business” purposes, other than property rented or held for rental to others: $2,500 while on “described location,” $500 while away from “described location” except for limitation for electronic devices and accessories
Ineligible Risks
Ineligible risks for the Home-Based Business Endorsement include:
- Contractors that offer installation services
- Child and adult care services
- Home healthcare services
- Lawncare services
- Risks with more than a single business conducted on the premises
- Those deemed ineligible by reinsurer
Many insureds don’t inform their agent about their home-based businesses because they believe their HO or FO/GL will cover any loss or because they are avoiding additional expenses.
Don’t assume you know what your insured or their household members do or that it is none of your business. It is your business and it could be your E&O.
Ask Questions
The best way to discover any business activities is to ask questions:
- What is the occupation/employer of each member of the household, including children?
- Are there other sources of income?
- What hobbies do the household members have?
- Do they have computers and what are they used for?
Even if there are no business activities these questions may lead to additional personal coverage being needed for items such as computers/electronics and collections.
Contact Us
If you have questions about whether a client’s business is eligible for the home-based business endorsement, you can consult your mutual’s underwriter. If the risk is deemed ineligible, have the endorsement added to the HO or FO/GL, contact WRC Agency at wrcagency@thewrcgroup.com or (800) 329-7020 and we will be happy to work with you to find a commercial carrier that fits your client’s needs.
The commercial lines process takes longer than personal lines and requires more information. You can accelerate the process by fully completing any applications provided. Many carriers require that their own supplemental applications be completed and they may not provide them to us until after we have submitted the initial Acord applications. We appreciate your patience and diligence when it comes to pursuing commercial lines quotes.