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What You Don't Know About Homeowner's Insurance Can Hurt You |
Homeowner's insurance gives protection against loss or damage in three main areas:
- Coverage for the structure of your home (fire, hail, flood, etc.)
- Coverage for the contents in your home (furniture, appliances, clothing, etc.)
- Coverage for personal liability due to an accident or injury suffered on your property (visitors to your home fall off the deck and break an arm, etc.
Homeowner's insurance covers you for the personal risks associated with owning a home. This insurance does not cover you for the risks of running your business. What many providers don't realize, however, is that once you start using your home for business purposes, your homeowner's policy may no longer cover you for your personal risks.
This means that many homeowner's policies do not cover family child care providers for the loss or damage to their home and its contents in addition to any personal liability protection.
How can this be?
There has been a major change in the insurance industry over the past decade. Insurance companies are backing out of covering industries that deal with children for fear of major lawsuits. Judges and juries have upheld claims made against homeowner's insurance policies for injuries to day care children. Insurance companies have paid out a large amount of claims due to natural disasters and are looking to reduce their losses.
As a result, some insurance policies will not cover the structure of your home if you care for more than a specific number of children (usually four to six). Other policies will not cover you if you operate a family child care business no matter how few children you care for. Some policies will only cover you if you can show proof that you have a business liability insurance policy.
One provider called and told us about making a claim on her homeowner's insurance company after a hailstorm damaged her roof. The roofing contractor was fixing her roof when he noticed a day care sign in her window. He contacted her insurance company and they refused to complete the work because her policy did not cover her home if any businesses were operated out of the home. The company then cancelled her policy.
Contents
Most homeowner's insurance companies limit the amount of coverage you can get for the loss or damage to any business property in your home. Usually this limit is about $2,000. Since most providers use virtually all of the property in their home for business purposes, this means that their furniture and appliances are probably not fully covered. Several years ago a tornado destroyed a provider's home in Minnesota. She only received $2,000 for the loss of all of her property.
In addition, most homeowner's policies do not cover a detached garage used for business, fences, and tool sheds or other separate structures used for business. If these items are damaged or destroyed, a provider would get nothing from her policy. As an example, one insurance policy reads, "We do not cover separate structures which are intended for use in business or which are actually used in whole or in part for business purposes."
Many providers are shocked to discover that their homeowner's policy does not cover their home or their property. What can you do?
It is important for providers to find out what their own homeowner's policy does and does not cover. There are many different insurance policies on the market and what is covered in a policy can change quickly. You should first contact your insurance agent and ask several specific questions: Does my homeowner's insurance policy cover my structure for the number of children I care for? Does my policy cover the contents of my home that I use in my business? You want your insurance agent to point out the specific language in your policy that shows you are covered or you want your agent to put in writing that you are covered. If you don't see it in writing, your policy will not cover you.
If your policy does not adequately cover the contents of your home, many homeowner's companies will sell you a business property policy (or rider) for a relatively low fee.
If you need to find a homeowner's insurance policy that will cover your home and its contents, search our insurance directory and look for those companies that also offer homeowner's insurance. Or contact an independent insurance agent in your area for help in finding proper insurance. If you continue to have difficulty in finding homeowner's insurance, contact your state insurance commissioner's office for help.
Business Liability Insurance Still Needed
Having adequate homeowner's insurance is no substitute for purchased business liability insurance to protect you against the risks of your business (injuries to children, sexual abuse allegations, lawsuits, etc.).
This handout was produced by Think Small (www.thinksmall.org).
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