Does a home office need home or business insurance?

By HUB SmartCoverage Team on November 14th, 2017

There's a lot of obvious perks that come with having a home office. It means there's no commuting to start and end the workday, no need to pack a lunch in advance, and no obligation to even get out of your pyjamas! (Okay, maybe the last one isn't feasible if there are clients paying regular visits to the house).

But what about when it comes to insurance? Does the fusion of the words "home" and "office" constitute a merger of insurance policies as well? Can home office workers actually kill two birds with one stone?

We'll answer those questions, but first, let's define what exactly a home office is in the world of insurance.

What counts as a home office?

Home workspaces and home offices are not the same thing. A home office is considered, by definition, to be a type of home workspace, but the reverse is not necessarily true.

The semi-retired person who uses a spare bedroom to make paintings that occasionally get sold at community events cannot call that room a home office. Though there is some modest commercial gain being had as a result of the work produced there, the space is clearly supporting a hobby and not a livelihood. For a workspace to be considered a home office—at least for tax and insurance purposes—it must satisfy at least one of the following conditions: it serves as a principal place of business and/or is used on a continuous basis for meeting clients.

If neither of those conditions is true, then there's no need to have insurance that is in any way differentiated from regular home insurance.

What does home office coverage entail?

At first glance, it may not appear that a home office would actually need to receive coverage that extends beyond a home policy. After all, if everything in the house is already covered, then what would it matter if the owner is simultaneously spending every weekday in front of a computer there, or having clients over to have ordinary discussions? How could that be seen as legitimately different from anything that normally goes on in a household?

Even when the answer to that last question is "it couldn't," insurers don't feel that way. In their eyes, homes are for domestic life and offices—even home offices—are for commercial life. This means that when something goes wrong in the home and the incident is directly linked to the business operations, it turns into another situation where basic home insurance won't cut it for reimbursement.

The delineation between home and business insurance is relevant in a few different areas. One is liability. This essentially means that if a person shows up to a home office for business purposes and gets harmed, business insurance would need to have been purchased in order for reimbursement to happen.

Another is property. When fires, water damage, and other unplanned hindrances destroy property in the home, anything that gets used primarily for business purposes (including business records and data) would not get included under standard homeowner's coverage. The same could apply to property outside of the home, such as materials being transported in a company vehicle, which may normally fall under the umbrella of homeowner's coverage.

Finally, if an incident results in business operations needing to be put on hold—either because of damage to valuable property, or injury to the worker/homeowner—that business interruption compensation can only be conveyed if there is business-specific coverage in place.

How does one sign up for proper coverage?

There are a few different ways in which business owners can get the coverage they desire. The method that ends up being best will depend on how much coverage is needed and how the insurers under consideration choose to dispense that coverage.

It's possible to get all of the business coverage required as an extension of a home policy. These extensions, or endorsements as they tend to be known in the insurance world, can be added on to a policy and make it so that property and liability claims for business purposes enter the scope of coverage.

A second option is to take out an entirely new business owners policy. This would essentially accomplish the same thing as the previous solution, except it may be the only way to go if the insurer that handles the regular home policy doesn't also offer business coverage. One could purchase both property and liability together, or choose to get the coverages independently of each other.

In general, business owners can choose to forego one or both of those coverages entirely. Sometimes it's actually the smarter move. If no clients are visiting the house, then it's unlikely that liability would be worthwhile; and if the property being used for the business is of little value, then it might not make sense to bother insuring. However, if there is even a slight chance those things could be needed, then it's probably a good idea to insure. There's no do-overs when it comes to insurance.

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