Just Started Working From Home? You May Need In-Home Business Insurance
If you’re working remotely right now, you’re in excellent company. In 2020, tens of millions of people began working from home on a full-time basis.
This WFH explosion was necessary to keep people safe and healthy in the middle of a global pandemic. However, while remote work has done a good job of protecting us physically, it’s exposed a lot of us to other risks that we couldn’t have been expected to see coming.
In particular, many people are still unaware that when you work from home full time, your regular home insurance stops fully covering you — and that exposes you to serious financial risks.
TABLE OF CONTENTS
- Why your home insurance matters
- Why doesn’t my home insurance cover my work equipment or liability?
- How to get insurance when you’re working from home: three options
- Recap: Insurance options when you’re working from home
Why your home insurance matters
Nobody likes dealing with insurance. Nobody even likes thinking about it. Insurance belongs to that category of “things we all know are important, but will put off dealing with as long as possible,” along with taxes and dental checkups.
However, as un-fun as insurance is, you do actually need it. In addition to health and auto insurance, which most of us are familiar with, you also need homeowners insurance or renters insurance or even engagement ring insurance to protect your:
Personal property
Unless you’re a true minimalist, the stuff you keep in your home is probably worth tens of thousands of dollars. The average tenant owns about $30,000 of personal property, and the average homeowner has even more.
If you don’t have an insurance policy that adequately covers your things, you’ll have to pay to replace all of them out of your own pocket if a fire or another serious disaster strikes your home.
Personal (legal) liability
“Liability” refers to the expenses you’ll have to pay if you break somebody else’s property or accidentally injure them, or if somebody sues you for any reason.
Most of us are familiar with liability in the context of auto accidents, where the party that’s “at fault” can end up having to pay for the damage to the victim’s car and medical bills (as well as their own attorney fees, if the victim takes legal action).
However, you can incur liability in dozens of other circumstances. Think of somebody tripping in your home and breaking their arm, your dog biting them, or just someone having an exceptionally bad day and deciding to sue you for no real reason. (Unfortunately, this happens all the time.)
Although we don’t think about it very much, having liability insurance is even more important than having property insurance, because while replacing your personal property can cost tens of thousands of dollars, lawsuits and medical bills can easily cost hundreds of thousands.
Home insurance covers property and liability ... but not when you’re WFH
The good news is that if you have homeowners or renters insurance (and you really should), it covers both your personal property and personal liability. The bad news is that if you’re working from home, your existing insurance probably doesn’t cover any property that you use for business, and it doesn’t cover your business-related liability, either.
Why doesn’t my home insurance cover my work equipment or liability?
Standard home insurance policies are meant to cover residences, not business premises. It’s right in the name — that’s why they’re called home insurance policies.
The problem is that when you’re working from home full-time, you’re using your home as both a residence and an office. Your insurance continues to cover your personal possessions, but it has special exclusions in it that deny coverage to your business activities and equipment.
If you open up your policy (an unappealing prospect, we know), you can find these exclusions by searching for the word “business.” You’ll probably find a section stating that your insurer won’t cover “business property,” or will cover it to a much lower amount than your other things (e.g. they’ll just pay for $1,500–$2,500 of business property, whereas the rest of your possessions are covered up to $30,000 or $50,000).
Even worse, there’ll be another section that says something like “Bodily injury or property damage arising in connection with a business … is not covered.” In other words, your home insurance probably doesn’t cover any liability that’s connected with your work — at all.
These exclusions apply to you no matter whether you:
- Own your own business
- Are freelancing (either as your main source of income or as a side gig)
- Are working remotely for your regular employer for pandemic-related reasons
Situations your insurance company won’t cover
The language in insurance policies is pretty legalistic and abstract, so there’s a good chance you’re wondering, “How bad is this, really?”
It isn’t great. It means you have to assume most or all of the financial responsibility for the following situations, none of which are far-fetched and all of which are expensive:
Situation 1: Your work equipment gets damaged or stolen
If somebody steals your work laptop, you’ll have to pay for it on your own — your insurer won’t help you. That alone has the potential to cost you thousands of dollars, and potentially far more if you forgot to back up the valuable data on it.
Your provider also won’t cover any of the following:
- Your work smartphone
- Office stationery
- Your camera (if you’re a photographer)
- Art supplies or finished artwork (if you’re an illustrator or artist)
- Power tools that you use for work
- Furniture in your home office
- Filing cabinets and their contents
Anything that you use regularly for work is considered “business property” and isn’t covered by standard homeowners and renters insurance. If it’s stolen or damaged (e.g. by a fire, a burst pipe, or a power surge) you’ll have to pay to replace it on your own.
Your entire home office is excluded from coverage
In fact, if you’ve designated a room in your house as your home office, your insurer won’t cover anything in it, regardless of whether or not it’s actually work-related.
If your office features a couch, a coffee machine, a TV, and cashmere rug, those items are excluded from coverage, even though you probably only keep them in your workspace to make the place more livable.
Situation 2: Someone gets sick or hurt in your home
Let’s say that you buy something for work, like a new desk. You order it online, and while the courier is moving it into your home, your dog bites them or they slip and fall down your front steps and break their collarbone. Unfortunately, you’re held liable for their medical bills.
Because the injury happened “in connection with a business,” your insurance won’t cover these expenses — which is bad, because they’ll probably be substantial. For those in the health sector, considering specialized insurance for home health care can be a prudent move to mitigate similar risks. Dog bites are particularly bad, costing upwards of $50,000 on average.
COVID-19 lawsuits
It being 2021, there’s also an exciting new type of lawsuit that you need to worry about: COVID-19 personal injury lawsuits. If someone visits your home for business purposes, contracts COVID-19, and claims you infected them, they might try to go after you for their medical bills.
Note that their lawsuit doesn’t have to be reasonable for it to be expensive. Even if their accusation isn’t remotely based in fact, even if they have no legal basis for their lawsuit, you’ll still have to hire an attorney, and they don’t come cheap. If you end up in that situation, you want your insurance company to back you up.
Situation 3: A client or your employer sues you for work reasons
Similarly, if someone sues you in connection with your business, you could be in trouble. (We know, we hope it doesn’t happen either.)
Imagine that a client says that you withheld work they paid for, or your employer claims that you lost or stole something valuable and takes you to court. This is more likely than in years past, since it turns out that many managers don’t trust their staff to work remotely, and when your employer is nervous, they’re more likely to behave unreasonably.
How to get insurance when you’re working from home: three options
So how do you protect yourself from these situations? You have three options, with the most suitable one depending on your circumstances.
Option 1: Business property rider for your home insurance
As we’ve said, your homeowners or renters insurance policy excludes your business equipment. However, your insurer probably offers something called a business property rider to expand your policy’s coverage for work-related items by several thousand dollars. (An insurance rider is an addition to your policy that adds coverage that standard policies don’t offer.)
Adding this rider obviously costs money, but usually not very much: many insurers offer it for less than $10 per month, which makes it by far the cheapest option to insure your business property.
The downside is that this rider usually doesn’t add any liability coverage to your policy at all, which means that you’re still unprotected from the scariest situations we talked about (where somebody sues you or you have to pay for their medical bills). Also, business property riders usually provide between $2,500–$5,000 in coverage, so if you have a large inventory of work equipment, this still might not protect all of it.
This type of insurance probably isn’t sufficient if you’re starting your own home-based business, but it’s a great option if you have a relatively small freelancing gig or you’re a remote employee and you don’t have clients or customers visiting your house.
If you decide you no longer need this rider after the pandemic dies down and you’re able to return to the office on a full-time basis, that’s no problem. You can call up your insurer and tell them you don’t need business coverage anymore, but still want to keep your home insurance policy.
Option 2: In-home business insurance
If adding a rider to your existing home insurance policy isn’t enough, you can opt for something called in-home business insurance, which is exactly what it sounds like.
If COVID-19 cost you your job and you decided that now was the time to start that small business you’ve always wanted, this is probably the type of insurance you should get. It’s meant for anyone who works for themselves but whose business is still based out of their home and has no more than three employees.
In-home business insurance usually costs $200–$500 per year, and usually provides:
- Around $10,000 in business property coverage
- Between $300,000 and $1,000,000 in business liability coverage (you get to pick the exact amount)
- One year of business interruption coverage, i.e. reimbursement for your lost income and payroll expenses if your home is damaged and you have to shut your business down for a while
In some cases, in-home business insurance also provides other structures coverage, which insures your things even if you keep them in a detached building. This is necessary for anyone who’s converted their shed into a studio space (carpenters and artists, we’re looking at you).
Operation 3: Businessowners policy
Your third option is to buy a businessowners policy, which in insurance industry jargon is often called a BOP.
BOPs are meant for businesses with more than three employees. That means this type of policy is overkill for most WFH coronavirus refugees — unless your business has grown astoundingly fast. (But if it has, congratulations.)
BOPs are a lot like in-home business insurance policies, and they provide similar coverage. They cover your commercial property, liability, and business interruption expenses. However, they provide more coverage in each category, and are available to businesses with more than 3 employees, which usually aren’t eligible for in-home business insurance.
It’s worth noting that BOPs don’t provide professional liability insurance, which is a special type of insurance that covers malpractice lawsuits, among other things. If you’re an attorney, an accountant, or a financial advisor, you probably need to buy a special professional liability insurance policy.
BOPs also don’t provide business vehicle insurance or workers compensation insurance, which you probably also need to get if your business is getting pretty large.
Recap: Insurance options when you’re working from home
If the COVID-19 pandemic has forced you to work from home on a full-time basis, you probably need to revisit your home insurance and make sure you’re protected from financial disaster.
If you’re just starting your freelancing career or you’re still working remotely for a traditional employer, it’s probably enough to add a business property rider to your current policy.
On the other hand, if you’re starting your own business and you have a lot of work equipment or you frequently see customers or clients in your home, you might want to look into an in-home business insurance policy or a BOP.
Dealing with insurance is stressful, and if the thought of sorting this out makes you feel like retiring, there’s no shame in asking for help. Ask your friends and family if they can recommend an insurance agent in your area to help figure out what kind of plan is right for you.