People may use their homeowner or residential insurance policy to handle their hobby activities, but homeowner policies do not generally cover home-based business losses. Homeowner policies generally include a broad definition of “business”. If your hobby begins to involve earning income you should consider whether business insurance is necessary. Depending on the risks in one’s business, it may be as simple as adding riders or additional items to be insured to a homeowners’ policy to cover normal business risks such as property damage. Sometimes it can be more complicated.
If you enjoy photography and occasionally sell copies of your prints, your “hobby” may become a business so far as your insurance company (and the IRS) is concerned. You may have thousands of dollars tied up in photography equipment that may receive only limited protection if it is stolen or damaged in the course of activities considered as business.
Perhaps you like to do portrait photography and charge for portraits you do for people in your home. Your homeowners insurance would cover liability for an accident to a guest in your home – but if you drop a hot light on the neighbor kid’s head during the course of a paid portrait session, it may be viewed as a business activity.
In particular, if you are tempted to declare your hobby as a business to take advantage of tax opportunities, the legal form of the business could create a need for business insurance. If you form a limited liability company or corporation, the activity needs business coverage. Finally, homeowner policies will not likely provide coverage for employees or for any professional liability.
If you have a hobby that generates income, you need to determine if your activities may qualify as a business, then talk to your Washington home insurance professional to see what coverage can be provided by the policies you currently have and what steps need to be taken to assure you are adequately protected.