understanding your insurance policy

What You Need To Know About Homeowner's Insurance If You Work From Home

6 March 2017 by Tuĝba Van Den Heijkant

If you work from home, you may be wondering how that affects your homeowner's insurance or if your homeowner's insurance provides any coverage for your business. Here's what you need to know.

1. Theft, Fire, and Many Acts of Nature

In most cases, homeowner's insurance covers theft, fires, windstorms, hail, and lightning. Your business is part of your home, and if your house catches on fire, your homeowner's policy typically covers the cost of repairs for all of your home including your work space in the home. Note that most homeowner's policies do not cover fires or earthquakes, so if you live in an area with those risks, you may need to buy additional policies.

2. Business Deduction

Because your homeowner's policy covers your business in the way explained above, you can actually write off some of your homeowner's insurance costs if you claim the home office deduction. Generally, you figure out your office as a portion to your home's total size, and you can write off that portion of your homeowner's insurance premiums. For example, if your home office takes up 10% of your home and your annual homeowner's insurance premiums are $1,200, you can claim a deduction for $120.

The IRS also has a simplified method where you don't claim your insurance costs as business costs. Instead, you just claim a deduction worth the square footage of your home office times $5. For example, if your home office is 100 square feet, you claim a $500 deduction. Ostensibly, home insurance costs as well as utilities are all just rolled into this calculation, but you don't need to track those expenses separately.

3. Liability Considerations

Unfortunately, if someone brings a liability case against your business due to an accident that occurred in your home, your homeowner's policy may not cover it. To explain, imagine you are a counsellor who works out of your home, and a client gets hurt walking up your stairs due to a broken stair. If the client were a guest, the homeowner's policy would likely cover the incident, but since the injured individual is at your home for your business, the policy may not cover it.

To ensure you are protected, talk with your homeowner's insurance agent about expanding your policy, or consider getting a separate liability policy for your business.

4. Business Assets

As indicated above, homeowner's policies typically cover losses related to theft. If you have any significant business assets, you may want to contact your agent and ensure that the assets are covered by your policy. In some cases, you may want to specifically list very valuable assets on your policy, and in other cases, your agent may advise getting extra theft insurance just for the business assets.

As a general rule of thumb, homeowner's insurance covers fire or vandalism to your home office, but most policies don't cover business liability issues. However, coverage can vary from policy to policy, so you should contact an agent directly. Finally, don't forget to claim a deduction on your premiums if you're eligible.

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