If you have a side hustle or hobby business which you run from home and have only taken out home and contents insurance, you are running the risk of being underinsured or having no insurance cover at all.

These key things can determine if you have the right insurance policy for home or business:

1. Duty of Disclosure - The Duty of Disclosure has been around for a long time – The ‘change’ is explained further in the article. You have a "duty not to mislead", meaning you must take reasonable care to answer questions properly, but do not necessarily have to volunteer information which is not relevant to the insurer.

2. If you have an ABN registered to your home address, promote your business via Facebook or have signage outside your property, and your business generates an income no matter how small

You might want to check your policy documents and contact your broker to make sure you have the right cover to protect you.

What you need to understand:

Duty of Disclosure 

Following the royal commission into the financial services industry, the duty of disclosure for consumers was relaxed and onus was placed on insurance companies to make sure their customers were aware of what they needed to disclose.

Duty of disclosure changed on October 5, 2021 to a duty to take reasonable care not to make a misrepresentation.

This swings the balance slightly in favour of consumers, and means the insurer needs to ask questions clearly and specifically, and communicate to the insured the importance of answering correctly, and the possible consequences of failing to do so.

But under the new duty the insurer would need to prove that a misrepresentation had occurred, that reasonable care was not taken, and that, had it known about the undisclosed matter, it would not have offered cover in the first place.

If your kid is selling lemonade at the front door, that would be a big stretch to say that’s somehow a business. If you’ve got an ABN and generating  an income from your home, that might be less controversial.

Insurers have every right to decline to cover home and contents customers due to low-level business activities.

The change means consumers now have a "duty not to mislead", meaning they must take reasonable care to answer questions properly, but do not necessarily have to volunteer information.

The advice to consumers is, as ever, read the Product Disclosure Statement. If you are unsure about anything, follow up to make sure that your insurance does cover you!

There is an obvious difference between working from home for your employer and running a business from home. Working from home is not an issue except for business operators!

One way you can avoid issues around your coverage is through a better understanding of what the correct coverage for your situation is. Talk to us at Peter Vickers Insurance Brokers we can give you advice on what is the best insurance package for your Home Business that covers all the things you need in one policy.

To illustrate where you can go wrong we have put together 5 Case Studies from various media sources.

Case Study 1 - Is it really a Hobby if you are running it like a Business?

A fire caused by undisclosed jewellery manufacturing in the complainants garage burnt their house down. The complainants were under the misconception that their jewellery manufacturing was more a hobby than a business.

But as the Australian Financial Complaints Authority (AFCA) pointed out an income was generated, there was also a business bank account and an ABN. Their home insurance didn't cover them.

Having an ABN registered to your home address changes the type of insurance cover you need. Therefore, If you set up a ABN, generate an income into your business bank account - You Should have a separate Business related Insurance Cover

Case Study 2 - How COVID has changed how Small Mobile Businesses run in 2022

The complainant ran a mobile bicycle repair business, were he would travel to people's homes and repair bikes onsite, as no work was done at his home, he did not need his business insurance policy to cover his premises.

But in 2020 when COVID made it impossible to go into someone's residence, he switched to picking up bikes and taking them back to the garage of his rental property to repair. 

On seeing a news program about Home Business Insurance and the issues with cover, he decided to contact his insurance company. The complainant paid for separate business and home insurance and had been a customer for 15 years, he was advised that his contents insurance would be cancelled by the insurer because his business was high-risk.

The company's home insurance policies were priced for the risk of a domestic private home, and that when a business was being run from a home, that risk could change "significantly".

He contacted several other major insurance companies, none of which would insure his contents because of the bike business.

NB: Insurers have every right to decline to cover home and contents customers due to low-level business activities.

Case study 3 - Food Truck leads to Home Insurance Cancellation

When Food Truck owners registered their truck to their home address, they unwittingly voided their home insurance policy.

They had their home and contents insurance policy with the same insurer for 20 years and a separate Business Insurance policy for their Food Truck for 5 years.

They did not think they needed to disclose that when the Food Truck was not in use it was parked at their home address and that they occasionally chopped vegetables at home, prior to taking their Food Truck out.

They said, It wasn't something they tried to hide. It never occurred to them to mention it and they had never been questioned about the food truck, or what, if any part of the business, was run on their property.

They were told their home insurance policy would be cancelled immediately because the food truck the couple had operated for the past five years was registered at their home address. Even though they had separate business insurance for their Food Truck. When discussing their home and contents insurance they had a "duty of disclosure" to tell their insurance company about the Food Truck and the fact that it was parked at their residence on a regular basis.

They were told the company's policy was "not designed for customers who run a business from home, for example, commercial cooking in the home's kitchen, where there can be an increased risk of an accident due to the work being undertaken".

Cast Study 4 - If it is on your property but not in your home or garage - do you still need to tell your insurance company about your small business?

When a fire destroyed a rural family's home, their home insurance claim was denied because they made approximately $70 a week from selling their chickens eggs at their property’s gate.

The couple did not believe they had to disclose the business because it was not operated from the house they were insuring. They claimed because their chickens that laid the eggs were housed in a shed a few hundred metres from their house and the eggs were sold in a shed at the end of the driveway at the farm gate stall using an honesty box. 

There was confusion between what constitutes a home business between the policy holder and the insurance company.at the end of the driveway selling free-range eggs

The insurer said the claim could not be accepted "because we would not have insured their home and contents had they told us they were running a business from the property and that there was a standard set of questions people must answer when buying home insurance online.

The insurance company said the couple's business was not the same as a lemonade stand as they had a registered ABN, signage, and a Facebook page for their business.

The Insurance Council of Australia emphasised the importance of telling your insurer about any business activity happening at your home. Failing to do so can result in your insurance being voided, but the insurer needs to prove the information you didn't declare was important. "When you purchase or renew insurance your insurer will ask you to disclose a range of information relevant to the policy including whether any business or commercial activity, no matter the size or type, will be conducted at the property," a spokesperson said.

Get the right insurance cover for your Business Talk to us at Peter Vickers Insurance Brokers on 1300 784 011 today, we are here to help.

_{sources: www.insurancenews.com.au/www.abc.net.au/www.insurancebusinessmag.com.au}