It is without fail that small business (and sometimes medium size as well) owners store business property at their homes. Homeowners insurance can provide some coverage but not much. Homeowners insurance coverage disputes can end up in court when it comes to covering business property. Case law exists but with mixed results for the policyholder. Using a residence to store business property is so common that I felt you should know the common limitations.
Let’s take a look at some critical issues. First, what is a business? Simply put, if profit is a motive, it will likely be a business. The amount of profit or lack thereof, could be immaterial. It will come down to the facts surrounding the loss and the nature of the business activity.
What is business property?
Homeowners insurance covers business property. However, qualifications and limitations exist. Property must be “owned or used by” the insured in “business”. Because business is defined in most policies, be sure you read the definition. You will find it to be very broad and some will have a dollar amount of annual revenue included.
Is business property subject to any sub limits?
In addition, sub limits exist of $2,500 while property is on the residence premise. Property off the premise is limited to $1,500, for non electronic equipment. Covered electronic equipment also has requirements. The equipment power source is important. Power sources can be a vehicle or other source. Electronic equipment has the same $1,500 sub limit.
Homeowners property may or may not be covered for replacement cost. This depends on how your Homeowners policy is constructed. Property is usually covered on an actual cash value basis. A replacement endorsement must be purchased. Also, personal property is often covered for perils specified in the policy. Check what perils will trigger coverage on your personal and business property.
A benefit of homeowners insurance coverage is a worldwide coverage territory. That is broader than a standard commercial policy. Not a compelling reason to choose this coverage over commercial insurance.
Not all homeowners insurance policies are the same. Examples of differences include the sub limit amounts and what constitutes business property in the first place. Recent forms consider property business related only if “primarily” used in business. This leaves the door open to confusion for dual use property.
Convenience and cost make a home a useful place to work from and store property. Just remember homeowners insurance has its limits and your situation may not be as clear cut as you think at claim time.
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