You started a side hustle from home. Does your insurer know?
TheZebra.com reports that many Americans are starting home-based side hustles, but they must inform their insurers to
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You started a side hustle from home. Does your insurer know?
Engaged in some gig work in the garage, merch-making from the basement, or another home-based enterprise? If you’ve recently started a side hustle, you’re not alone: Nearly 1 in 3 Americans have done so to supplement their earnings. And around 19 million U.S. businesses operate out of the owners’ homes. That’s little surprise, considering the higher cost of living and increasing job uncertainty in the corporate world nowadays.
Being an entrepreneur from home can simplify matters and reduce costs, especially because you don’t necessarily have to drive or leave your property to earn money. But whether you’re selling on Etsy, tutoring kids after school, renting out a spare room, or freelancing full-time, you could be vulnerable to homeowners insurance gaps.
TheZebra.com takes a closer look at why, and what you can do to financially shield yourself from insurance risks.
Your Homeowners or Renters Policy Was Written for a Resident, Not a Business Owner
Standard homeowners and renters insurance policies cover personal use of your home, not business activity. Once you begin earning dollars from your gig work or small business being run from your property, the coverage question becomes more complicated.
“Homeowners and renters policies are designed for personal property and personal liability,” says Dennis Shirshikov, a professor of finance and economics at City University of New York/Queens College. “They may provide limited coverage for business equipment, but may exclude business-related injuries, professional mistakes, lost income, inventory, and customer claims.”
The biggest risk is a denied claim. If your policy is written particularly for you as a homeowner, it won’t necessarily safeguard you if your carrier learns you’ve been operating a business there without telling them. And that denial could result in serious financial consequences.
“Some activities are inherently riskier than others, such as having clients or customers in your home, which is a different risk profile than simply selling items online,” notes Beth Swanson, insurance analyst with The Zebra.
If you are running a business from your home or plan to start, inform your carrier immediately. Prepare to disclose details about any customer visits, any employees who work under your roof, and any equipment or inventory stored on your property.
“The good news is that you can usually tailor your coverage to match your actual risk, and a skilled insurance agent can walk you through the options,” Swanson adds.
Selling Goods from Home
For those selling products from their home address, two major coverage gaps may leave you unprotected, according to Janet Ruiz, director of strategic communication for the Insurance Information Institute.
“The first is business property, including inventory, equipment and supplies. The second is product liability, which may arise if a product causes injury or damage. Depending on your operation, getting a business endorsement on your current policy or a separate commercial coverage policy may help address these risks,” she says.
A common starting point for liability coverage is $1 million per occurrence and $2 million in total annual coverage. Your property limits should reflect the full replacement cost of your equipment and peak inventory.
Service-Based Side Hustles
If you regularly invite customers or clientele onto your property, you could face general liability exposure if someone is hurt during the visit, or professional liability exposure if that visitor alleges that your service, advice, or instruction caused them financial loss or harm.
“Someone like a tutor, hairstylist, or music teacher may need both general liability and professional liability coverage,” Shirshikov continues.
The former covers accidents or bodily injury claims; the latter covers less visible risks, such as errors and omissions. Shirshikov recommends at least $1 million of coverage per occurrence and $2 million in aggregate coverage for general liability, plus $1 million in professional liability coverage.
“A business owners policy (BOP) combines property coverage, general liability, and business interruption coverage, and can be a good option. But there are specific requirements to qualify, so it may not be available for all home businesses,” says Swanson. “It’s best to talk with an independent agent or broker about your specific situation and find something that fits.”
Remote and Digital Work
Freelancers, designers, virtual assistants, consultants, and other providers of digital work, as well as those working remotely from home, represent the lowest-risk category from an insurance perspective. Yet, there are gaps to be aware of here.
“These professionals may face risks involving professional errors, client disputes, cyber incidents, equipment losses, and business interruption,” Ruiz points out.
Thankfully, policies exist that fit almost any type of remote or digital work. Case in point: Media liability coverage is available if you’re a content creator, which is sometimes required if you have brand sponsors for videos or other content. This protection can help with issues like copyright infringement claims.
“Also, cybersecurity may not be covered under a standard homeowners policy, so you might need a stand-alone option for that,” adds Swanson. “Professional liability coverage is important, too, but there can be real gaps in coverage for people creating content on social platforms, like freelance graphic designers or consultants.”
To play it safe, discuss available options with your insurance agent, inquire about endorsements that could add additional protection, and ask about exclusions that may apply.
Renting Out a Room (House Hacking)
Leasing out a portion of your home to a paying tenant can create property and liability risks that are different from standard owner-occupied scenarios. Be sure to disclose this renting arrangement to your carrier before the renter moves in.
“Your insurer may allow a homeowners endorsement, require you to get an owner-occupied landlord policy, or recommend a dwelling-fire policy with liability coverage. Have your home insured for replacement cost, not market value,” says Shirshikov, who recommends at least $500,000 in premises-liability coverage where available and a $1 million umbrella policy for extra protection.
It’s also smart to have a solid lease in place and require your tenant to carry their own renters insurance.
“Your tenant’s belongings need their own coverage, not yours,” says Swanson. “And if you’re doing more of a furnished or short-term rental setup, make sure you have replacement cost value on the furnishings and items in the space.”
What To Actually Do Before You Start
Before launching any business or continuing your gig work, take the time to:
- Contact your insurance company and notify them about your plans and activities. “Tell them exactly what your business does, what equipment or inventory is stored there, and whether customers visit, products are sold, employees work there, and a vehicle is used for business,” Shirshikov suggests.
- Assess any liability exposures, review your existing policy, and add extra coverage as needed. “Determine whether endorsements or separate business policies are appropriate,” advises Ruiz.
- Create an inventory of your business property in case you ever need to file a related claim.
- If you plan to rent to a tenant, confirm that your mortgage lender, homeowners association, zoning rules, and local requirements allow this activity.
- Take basic precautions to keep your space safe, especially if you have clients come to your home. “Preventing an incident is always easier than dealing with a claim afterward,” Swanson continues.
- Install motion lights, handrails, clear signage, and other items that decrease your liability risks.
This story was produced by TheZebra.com and reviewed and distributed by Stacker.
