People who run small businesses out of their homes often mistakenly think that their home insurance policies cover their business activities. As explained by Miranda at Financial Highway this is usually not the case. My own experience with home insurance was much worse than the picture Miranda paints.
I used to run a one-man consulting business. The only things I needed for the business were a computer, some space in my files for papers, and some desk space. I never even had any clients in my home. Even so, I thought it would be best to contact my insurance company to make sure I was properly covered. I also inquired about professional liability insurance for my business dealings.
The insurance company took all the information, went away for a long time, and finally came back to say that they wouldn’t offer me professional liability insurance and further they were dropping me for home insurance! They didn’t care that I had nothing in my home that would matter to my business if it were destroyed.
The only explanation I was able to extract was that if I had some bad business dealings, a client might try to sue the insurance company. Why one of my clients would try to sue my home insurance company is beyond me.
All this might make people with home businesses think that they had better not tell their home insurance company about the business. However, if something big happens such as the house burning down, the insurance company will investigate looking for reasons to deny the claim. Finding a home-based business would be a great reason for denying a claim.