As more people start side hustles from home, policy gaps in home-based business insurance are emerging as a critical issue to watch out for.
According to QuickBooks’ ‘2026 Entrepreneurship Research’, about 47% of Americans earned supplemental income through a side hustle this year. Side hustle earnings average $1,275 per month, or about $15,000 annually. While the rising cost of living is driving the expansion of side hustles, homeowners need to check their existing coverage limits before starting a business.
It is easy to assume that standard homeowners insurance will cover incidents such as a kitchen fire while catering, a customer slipping in the hallway while picking up an item, or a burst pipe damaging online sales inventory. However, if a loss is determined to be related to business activities, insurance claims can be denied.
Understanding Business Use Exclusions in Homeowners Policies
Standard homeowners policies include clauses regarding business-use and coverage exclusions. If you store business inventory at home and suffer losses from a fire or water leak, the coverage limit is typically capped at around $2,500, and sometimes even lower depending on the policy. Even if you store thousands to tens of dollars worth of products in your home or garage for online sales, you should not assume homeowners insurance covers the entire inventory.
The same applies when customers or employees visit your home for business purposes, or when products for sale are manufactured at home. Not only regular businesses, but also intermittent business activities can be subject to insurance policy restrictions. In particular, if a customer picking up an item is injured on the porch or stairs, it can lead to business liability issues distinct from general visitor accidents.
Woodworking and the Hobby vs. Business Dilemma
Woodworking is a prime example showing the difference between a hobby and a business. Making furniture for home use can be considered a hobby, but if you sell the furniture you make a few times a month on platforms like Facebook Marketplace and have $15,000 worth of tools in your garage, the situation changes. The garage effectively becomes a business workshop, introducing risks the insurer did not account for when the policy was initially written. If a sold table collapses and injures a buyer, product liability issues may also arise.
Insurers may evaluate the same work differently depending on whether it involves making items for personal use or continuously producing products for sale.
Problems can also arise if you did not inform the insurance company that you were running a business at the time of policy signup, or if you failed to notify them of changes after starting a side hustle later.
Why Insurers Reevaluate Home Risk Profiles
Insurers determine premiums and coverage limits based on home usage and risk levels. If a home insured for regular residential use has customers coming and going, stores substantial inventory and high-value equipment, or manufactures products, the actual risk differs from the risk evaluated by the insurer, which can affect claim payouts.
