Do you need yard sale insurance?

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The first goal of any yard or garage sale is to make money on castoffs. They’re also a great way to recycle unwanted items, clear clutter from our homes and meet the neighbors.

But a yard sale also can prove costly. What if a bargain hunter slips and fall, drops a microwave on his or her foot or accidentally gets sliced by Uncle Bob’s Civil War saber on your property and decides to sue you for damages?

Most homeowners insurance and rental policies will cover you for bodily injury and property damage that you or your family members cause to others, including court costs and judgments against you. However, the coverage amount is typically limited, often to $100,000, according to the Insurance Information Institute.

Many policies also have a no-fault medical component to their liability coverage that allows someone who is injured on your property to submit their medical bills directly to your insurance company. However, that coverage is often capped at $1,000 to $5,000 on average, according to the institute.

The first yard sale risk is that a court judgment could well exceed your coverage limits. According to Jury Verdict Research, the average jury award in personal injury lawsuits in 2006 was $978,848.

The solution? Talk to your insurance agent about additional liability coverage and/or an umbrella plan that can insure you for $1 million or more, with additional coverage for things like libel and slander.

But wait, there’s more — risk, that is. Should your insurance company determine that you were conducting your yard sale as a business, your homeowners insurance may not cover you at all.

Typical language under “policy exclusions” in a standard homeowners policy reads: “Personal liability and medical payments to others do not apply to bodily injury or property damage arising out of or in connection with a business engaged in by an insured.”

“If someone is really holding a garage sale on a constant basis, then it would become more of a business,” says Trace Meek of Condon-Meek Inc. insurance agency in Clearwater, Fla.

How do you know if your garage sale qualifies as a business? That’s one of those insurance gray areas.

“If you have a yard sale once a year, or even once a season, that’s not a business per se,” says Jeanne Salvatore, senior vice president and consumer spokeswoman at the Insurance Information Institute. “If this yard sale is now an income-producing situation, then you have a small business and you need business insurance.”

Joanna Augustynski of Allstate Insurance agrees. “It has more to do with the purpose of the yard sale than the frequency,” she says.

As a general guideline, if you have a couple of yard sales a year, you’re probably covered by your homeowners policy. If your sale is a charity event, you’re also probably covered. But if cars are lined up down your block every Saturday morning, that’s probably a sign that you should check into business liability or “home/work” coverage.

“You could easily buy a business liability policy for that,” says Salvatore. “A few insurance companies have what they call home/work policies, which are kind of a combination of homeowners and business insurance for people who work at home.”

In fact, if your yard or garage sale business is growing out of a hobby or interest, such as jewelry making, crafts, quilting, collecting or liquidating estates, it’s probably time to review your insurance needs with your home insurer.

“If you’re running a business, you might also need other types of insurance. For instance, maybe you make jewelry and you keep it in your house and sell it every weekend in your driveway. Well, maybe now you’re investing in beads and semiprecious stones and equipment, so now you would probably also want property insurance for your business in case somebody came and stole all your stuff,” says Salvatore.

Meek says business theft coverage might be prudent for those who sell their neighbors’ castoffs. “There could be issues around holding materials of others, such as if somebody brings their stuff over to your house and it gets stolen from your house,” he says.

Although the chance that someone may slip and fall at your semi-ongoing garage sale could put you at considerable financial risk, Meek says that in practical terms, that’s a risk that many front yard entrepreneurs are willing to take these days just to feed their families.

“If they’re doing garage sales every day, it’s going to be a hard sell to try to get them to buy a business owners policy these days,” says Meek. “It’s hard enough to get people who really do have businesses to get their insurance.”