Working from home: The fine line in your insurance

 


When a driver rear-ended her and she heard a snap in her back, the latter woman knew something was wrong. After reporting the car accident to her auto insurance company and undergoing a couple of weeks of physical therapy, she thought she was in the clear. She had both types of insurance (health and auto), so what could possibly get in her way? It turns out her entire reason for being in her car was the problem.

The woman, a former co-worker of mine, was a Lyft driver. And the minute her auto insurance company found out that she was not traveling for personal reasons, and her car was not covered for business travel, her claim was dismissed. While she was still covered for health insurance, she was held financially responsible for all car damage. She didn’t purposely leave out her ride-sharing hustle; she just didn’t do it enough to consider it a full-time job. But by not clarifying that ahead of time, she (literally) paid the price later.

Unfortunately, she won’t be the first or the last to face this problem. And in a coronavirus world where social isolation is the primary rule of thumb, some people are having to make tough decisions. For full-timers in Corporate America who can do their jobs from home, the financial strains may not be as complicated. Even for freelancers who were already working from home, social isolation may be just another day. But what about that middle group? The ones who are trying to make ends meet and are taking on new and creative jobs to produce missing income? This may be the group who becomes the victim of what insurance companies will and won’t tolerate.

Let’s say you’re a dog caregiver who runs a Rover or Wag business from your home. You’re having the time of your life with your new doggy daycare business, but one dog becomes unruly and tears up furniture or the floor. If you’re a renter, you’ll have to answer to your landlord (assuming this condo unit owner is attentive and finds out). The owner will then have to deal with the property insurance company to cover the damage — or pay out of pocket, meaning take repair costs out of your security deposit (or pet agreement). And once the property insurer finds out that there is a business being run from your unit, then that payoff may come down to whether the unit owner (or tenant) was honest about it from the very beginning.

If there is a specific area of the condo that is dedicated to a business, repairs may be considered a tax write-off. (Tax preparers would be able to give more refined advice on this topic, but know ahead of time that your “work” area should not be used for personal needs. Say, for example, the doggy daycare is also where your own dog hangs out. That blurs the line between business and professional.)

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Photo credit: Jimmy Dean/Unsplash

Or, skip the four-legged animals altogether. Maybe your hustle is catering, but you’re also using your own kitchen for family events and big brunches for friends. If a fire breaks out in your unit, can you write this off as a business claim or a personal claim? It may come down to whether the property insurers knew you were a professional chef (or moonlighting as one) to begin with. Lying about your at-home business won’t do you much good if you have a traceable company and/or are writing expenses off on your taxes. Should these two worlds meet, or you have to provide some kind of proof for insurance later, insurers will more than likely pay attention to when this business was established. Expect your monthly rates to immediately rise once you go from personal to business insurance — whether it’s for your car, your den, or your kitchen.

Assuming you’re following all state tax laws and have your insurance paperwork in order, there’s also the matter of condo bylaws and the board. If the condo bylaws oppose home-based businesses, you may want to consider that before moving in — or pay attention to how your state feels about this career grind.

For example, according to the U.S. Small Business Administration, in states like Maryland, the action was taken to effectively bar new homeowner associations and condominium associations “from prohibiting or restricting no-impact home-based businesses — and declares such restrictions unenforceable — unless the members have expressly voted in favor; and requires that a prohibition against no-impact home-based businesses existing in legal documents may be eliminated by a simple majority vote of the eligible voters.”

If you’re particularly passionate about your home-based business, you would do yourself some good to not make an enemy of your neighbors. You may need them to support your decision (and potentially help inspire them to start their own SBAs, too). Tread lightly with this one though. If your SBA becomes a nuisance to other unit owners, they may lean more toward a “nay” vote. For example, if your cooking business is bringing in a heavy amount of foot traffic and loitering in the hallways, this could prove to be dangerous (in a COVID-19 world) or just plain smelly in the hallways (depending on what you’re cooking).

Or, maybe your laundry business results in you hogging all the communal washers and dryers at all hours, leading to other unit owners never being able to do their own chores in a timely manner. The list of potential nuisances can be longer than the perks. Before starting your new SBA (or continuing it), weigh the financial pros and cons first, then brainstorm on the potential conflicts that could arise from living in a multi-unit building. If you can manage to find a business investment that doesn’t disturb your neighbors, won’t leave you in liability debt, and doesn’t require you to bend over backward to dodge the Internal Revenue Service, you may be in luck.

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