As public adjusters, we regularly see homeowners who have a home office or workshop where they might undertake small side projects to augment their income. These workshops might be in their basement or in their garage, and contain tools, supplies or electronics that the homeowner owns and uses to work on such projects.
This is a perfectly valid use of your home space, but it can be perilous if you aren’t careful about the limits of insurance coverage for these items.
The items mentioned above are considered Business Personal Property (BPP). Keep in mind that your standard homeowner’s insurance policy has a limit of only $2,500 for BPP. Check out your HO-3 policy’s Special Limits of Liability section, which talks about limits on “the residence premises, used primarily for ‘business’ purposes.” [NOTE: this recommendation is based on the current version of the HO-3. In previous versions, limits and other provisions might differ.]
Maybe you are a carpenter and have accumulated numerous expensive tools over the years. Or you might be an artist who sells oil paintings and keeps expensive supplies in your at-home art studio.
If you have a property loss at your home, the insurance company adjuster will note these business property items and ask the right questions. (And resist fibbing! If the insurance company finds out that you lied to the adjuster, they WILL deny the entire claim.) If your home business generates income more than $2,000 annually, then you are limited to recover only $2,500 for these BPP items.
Understand that this can be a staggering blow to you if you have a lot of expensive equipment. A workshop full of costly tools can be valued at more than $20,000 – so a coverage limit of only $2,500 is crippling. What about a piano teacher who uses a valuable baby grand to instruct his students? If the piano is worth $20,000, and the teacher takes in more than $2,000 annually for lessons, then $2,500 is the limit of what the teacher can recover.
Sound harsh? The theory behind this posture is that your homeowner’s insurance is intended to cover your home and personal belongings. You’re supposed to purchase a separate property policy to cover your business and business property.
What options do you have? You could get an endorsement for your BPP. A separate endorsement will cover all of your expensive BPP, regardless of income levels.
So, talk to your local insurance agent, who will fully understand whether you need an endorsement or a separate insurance policy. Explain what you need for your BPP, and your agent will help you get the right coverage.
Don’t get caught by BPP limits!