What should I know about business insurance?

Rennie Heuer

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As I build more and more items for customers I have become more aware of the possibility of being liable should someone hurt themselves on something I have built, fall off a chair, bump into a table, etc. So, I recently got a quote from our local insurance agent for business insurance. It would cover replacement cost of all my tools and liability should someone hurt themselves on something that came out of my shop.

I have to assume that many of you who are selling things from your home-based business have some form of insurance. Does anyone have any pointers as to what should or should not be included? Should anyone wish to see specifics I would be happy to share the quote that I received. In short, I am covered for $20,000 replacement cost on tools and $300,000 per occurrence on liability. There are lots of other things included like glass breakage and such that I have no idea if I really need or not. But, as I understand it, these are commonly included in business insurance.

Any and all advice or comments are most welcome.
 
I have no insurance, but I am a solo woodworker. If someone is hurt by something I build, they know they can blame me, and can sue me personally, not just the limited funds in the company. I do not build anything "unusual" that I could be blamed for (and I make sure everything is stable and far stronger than necessary).

If you have helpers or employees, then who made the mistake that led to the failure and accident is hard to determine, so the company is more likely to be sued, rather than being at personal risk.

I absolutely do not do any installation or work that could be called "contractor" since there is too much risk of the screw in the wall hitting a wire and causing a fire years later. (And lots of other things that you can imagine). If you are a contractor, then you probably need a lot more than $300,000 coverage (the house burns down with all the contents, and someone is hurt or killed.)
 
I did a cursory look for insurance a couple of years ago through the same company that insures my home. I wanted coverage for tools and liability. The subsidiary they sent me to wanted to know my sales volume. I don't sell anything, but gave them an estimated amount of 3k per year. The guy laughed and said their lowest policy was geared to 50k in sales per year, and the cost was way too high....in excess of my estimated sales:) After that, I gave up.
 
When I had my Property Management business, I had a one million dollar liability policy. Back then - over ten years ago - it cost me something like $900 annually.

I also had - and still have - a one million dollar "umbrella" policy that covers any excess liability over and above my automobile and homeowner's coverages. The umbrella policy is relatively cheap - about $175 per year.
 
I have insurance throw my school but its throw one of my clients, since there is no cost for someone coming to the school ( they only need to pay if they don't bring material with them) an they sign paper work for not at fault of instructors or school if they didn't follow safety procedures or report a safety problem. Now if they are hurt due to a malfunction of the equipment, not due to being maintained but a defected part they can go after the manufacture.
But a lot of people get lawsuit happy theses days so I cover all basses Inc. your wood working business an that's all they can go after

I have never had a problem with anyone due to something being made by me or the school an I've been doing this for a while the school is only 3 years old an only had one problem with 1 individual an it was due to racism with one of the instructors. The instructor was form Middle East but an American Citizen at the time of the remarks made ( I do want to learn from a Rag Head ) I don't tolerate this behavior an sent the individual on his way. He tried to sue the school said he paid to be there an was sent away due to his 1st amendment right way violated an it wasn't when he tried to choke the instructor other instructors stopped it.
He was sent to us form the VA with about 16 others for different courses , an the other Veterans agreed with the Instructors an helped toss him out. VA was notified of the behavior an removed him from the school until his mental health was better. But 2 weeks later he found a lawyer an tried to sue me for violating his 1st amendment right. There's a sign on all doors an they signed the paper work stating Polical an religion statements are not allowed nor tolared on the school property. 9/10 of the instructors are from overseas an they are here to teach not play games an they follow the rules so must everyone else
Judge dismissed case an made him pay for court fees an my time for been there
That my 2 cents
 
Have more liability coverage than you're personally worth by some reasonable percentage, this basically make it more attractive to sue the insurance company than to sue you (and it's usually another ins company doing the suing not a poison). The umbrella policies are usually a decent deal (I think $1m was less than $100/yr from our carrier for personal coverage) but require good base coverage (usually maxing out the base ins more or less). Personally I'm less worried about losing my stuff (which would be rough no doubt) than I am about someone getting hurt. Medical bills add up really fast, a complicated broken leg ended up running well over $400k. Of someone got crippled for life or something you're in the millions before you get started.

I'd also inventory your tools (good idea anyway) and see what actual replacement cost ends up looking like ( ins for replacement cost is usually more expensive so your need to decide if that was worth it). I suspect you might be surprised how much you have. Cross check on coverage for inventory as well if you carry much wood, etc in stock. Also be aware that your policy probably doesn't cover shows or farmers markets, etc... Check the details carefully, if it doesn't say it carries it then make sure you have a rider for anything in writing. Remember your agent likely isn't the adjuster wood handle a claim.

This is partially why I don't sell anything at the moment (and work rules are complicated as well), I just don't need the hassle and risk for the small (tiny really) amount I'd have time to do.
 
I have no insurance, but I am a solo woodworker. If someone is hurt by something I build, they know they can blame me, and can sue me personally, not just the limited funds in the company. I do not build anything "unusual" that I could be blamed for (and I make sure everything is stable and far stronger than necessary).

If you have helpers or employees, then who made the mistake that led to the failure and accident is hard to determine, so the company is more likely to be sued, rather than being at personal risk.

I absolutely do not do any installation or work that could be called "contractor" since there is too much risk of the screw in the wall hitting a wire and causing a fire years later. (And lots of other things that you can imagine). If you are a contractor, then you probably need a lot more than $300,000 coverage (the house burns down with all the contents, and someone is hurt or killed.)

Charlie, I am solo as well. As for unusual builds, something does not have to be unusual for someone to hurt themselves on it. They could be leaning back in a chair, standing on a bench, etc. they might misuse something like hammering in a nail with a jewelry box. Does not much matter if the are not using it correctly, they can still sue. Might not win, but it will still cost you money to defend yourself.

I do some installation (I am building a lawn sign that I will be installing for a local business) but no cabinets or such. I also deliver so it's conceivable that I could put a table leg through a storm door or knock over a priceless vase. So I believe the possibility of my being libel for something exists and that was enough for me to look into it.

When I had my Property Management business, I had a one million dollar liability policy. Back then - over ten years ago - it cost me something like $900 annually.

I also had - and still have - a one million dollar "umbrella" policy that covers any excess liability over and above my automobile and homeowner's coverages. The umbrella policy is relatively cheap - about $175 per year.

Jim, I have an umbrella policy as well, $1 million and the cost is about $14 a month, but it does not cover my tools or business liability.

I did a cursory look for insurance a couple of years ago through the same company that insures my home. I wanted coverage for tools and liability. The subsidiary they sent me to wanted to know my sales volume. I don't sell anything, but gave them an estimated amount of 3k per year. The guy laughed and said their lowest policy was geared to 50k in sales per year, and the cost was way too high....in excess of my estimated sales:) After that, I gave up.

Ted, my agent ask about sales as well but did not laugh when I told him $5k. I was concerned that my homeowners policy would only cover about 10% of the value of my tools if stolen or lost. Also, noting in my homeowners would cover me should hurt themselves using something I built.

The policy I am looking at covers all these things including replacement cost of tools. The cost is under $400 per year.
 
Have more liability coverage than you're personally worth by some reasonable percentage, this basically make it more attractive to sue the insurance company than to sue you (and it's usually another ins company doing the suing not a poison). The umbrella policies are usually a decent deal (I think $1m was less than $100/yr from our carrier for personal coverage) but require good base coverage (usually maxing out the base ins more or less). Personally I'm less worried about losing my stuff (which would be rough no doubt) than I am about someone getting hurt. Medical bills add up really fast, a complicated broken leg ended up running well over $400k. Of someone got crippled for life or something you're in the millions before you get started.

I'd also inventory your tools (good idea anyway) and see what actual replacement cost ends up looking like ( ins for replacement cost is usually more expensive so your need to decide if that was worth it). I suspect you might be surprised how much you have. Cross check on coverage for inventory as well if you carry much wood, etc in stock. Also be aware that your policy probably doesn't cover shows or farmers markets, etc... Check the details carefully, if it doesn't say it carries it then make sure you have a rider for anything in writing. Remember your agent likely isn't the adjuster wood handle a claim.

This is partially why I don't sell anything at the moment (and work rules are complicated as well), I just don't need the hassle and risk for the small (tiny really) amount I'd have time to do.

Ryan, thanks for your input. The policy I'm looking at has about 20 different things it covers including off-site activity of my business. I will doublecheck, but I assume that would include things like shows and farmers markets. The agent also suggested I do a complete inventory of my tools noting replacement cost for each. I have decided to build a spreadsheet on my iPad and go through each drawer and note the name manufacturer and serial number of each item and then have some fun shopping online to see how much it would cost to replace each.

The policy I'm looking at, for $400, also covers raw and completed inventory. So anything I am holding for sale online, or my huge stack of wood, are all covered. The trick here is to keep an accurate inventory.

Overall, for under $400 a year, it covers many many items. Including inventory off site operations and tools it also has money for medical expenses outside of those that fall under liability. I will have to read a little bit further but I think it may also cover catastrophic loss of equipment due to things other than wear and tear, for instance if a motor catches on fire. I will have to double check that.
 
Couple of things, having BTDT.

Looking at court judgments, $300,000 doesn't cover the lawyers. I'd ask about a lot more! Like $10M.

Don't assume anything about your homeowners' policy. Generally speaking that whatever is 'tainted' by the business designation is not covered by your homeowners. Example, if a client came to talk with you at your shop about your work and slipped and fell, your homeowners would probably not cover that.

Look into the legal format of your business and see how that affects rates and offers protection from piercing the business shield and going after personal assets. The reason for the business insurance is to sustain a loss and not lose your personal belongs, house, cars, etc. Potential lawsuits are only one way to lose. Fires, natural catastrophes, human catastrophes, etc also play a part. Maybe Rob's wife will chime in as she has a background here. My insurance agent told me that the more important information of what a policy covered was what it did not.

FWIW. Dos centavos in the pot.
 
Rennie, $400 doesn't sound too bad. The tool replacement limit on my homeowners policy wouldn't even replace my lathe and they said if a fire was caused by a tool and I was engaged in business, i.e. I sold even a few bowls, they would not honor the policy. That's why I was looking. Your agent's deal sounds pretty good for the amount of sales you project, and it protects your tools too.
 
Couple of things, having BTDT.

Looking at court judgments, $300,000 doesn't cover the lawyers. I'd ask about a lot more! Like $10M.

Don't assume anything about your homeowners' policy. Generally speaking that whatever is 'tainted' by the business designation is not covered by your homeowners. Example, if a client came to talk with you at your shop about your work and slipped and fell, your homeowners would probably not cover that.

Look into the legal format of your business and see how that affects rates and offers protection from piercing the business shield and going after personal assets. The reason for the business insurance is to sustain a loss and not lose your personal belongs, house, cars, etc. Potential lawsuits are only one way to lose. Fires, natural catastrophes, human catastrophes, etc also play a part. Maybe Rob's wife will chime in as she has a background here. My insurance agent told me that the more important information of what a policy covered was what it did not.

FWIW. Dos centavos in the pot.

Carol, thanks for your insight. I'll look into raising that liability number and see what the cost would be. As for the homeowners policy, you're right. It covers very little. If a fire started in my shop I would have a hard time with the insurance company because that is where my business runs. One of the primary reasons for my looking into this insurance was to cover the cost of tools over and above what the homeowners policy would pay.

I operate as an LLC so, if I understand correctly, someone could very easily come after me on a personal level and all of my personal assets would be at risk. I do occasionally have customers come to the shop and it has always worried me that an accident could happen while they are here. If I know a customer is coming I always clean up and make sure there is no sawdust on the floor that might cause a slip but you never know how clumsy someone might be.
 
Rennie, $400 doesn't sound too bad. The tool replacement limit on my homeowners policy wouldn't even replace my lathe and they said if a fire was caused by a tool and I was engaged in business, i.e. I sold even a few bowls, they would not honor the policy. That's why I was looking. Your agent's deal sounds pretty good for the amount of sales you project, and it protects your tools too.

Ted, my thoughts exactly. I think my homeowners policy would cover $2000 for tools. That would just about cover the tablesaw I would be out of luck for everything else. The actual cost of the policy is about $367 as it stands. I will, however, be looking into raising the liability number a little based on Carol's recommendations. I would expect that even doubling it would not raise the premium passed the $400 per year mark. As I stated at the beginning one of my primary purposes for looking into the insurance policy was to cover the cost of replacing the tools should they be stolen or lost through catastrophe. The homeowners policy did not even come close paying only about 10% of what I guess I have out there.
 
Sorry my wife is of no use in this case. She only deals in personal home and auto market and then only knows Ontario rules and they very different from US.

I would agree with Carol in general on getting more liability cover. My own business experience in past in USA educated me as to the criters that make a living from preying on businesses. I would also not advertise it once u have the cover in the case of your business, for others such as contractors, having it is well worthwhile advertising it. Rather let the critters percieve the target of opportunity aint worth the spoils.
Your clientele to me should be focused on your skills and work quality which speak volumes. It may sound arrogant but they should be so lucky to have you make them something so if they dont appear to be the type to appreciate you, hey to me then they not an appropriate target market for you. :)

It so sad to me that we have to even think this way. :(
There is not adequate realization on the part of the greater whole as to the cost the entire economy incurrs because of it and how that plays into the competive ability of business to function. Its a cost that basically adds no value. Best of luck. Delighted to hear you professionally taking care of it and dotting the i's and crossing the t's.



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in my situation, my home insurance with umbrella wont cover shop if its business at all... they want separate business policy..and need inventory to date and value of such then they figure rate.. i would find a good lawyer that you trust and ask him the questions of liability then go from there rather than just buying a deal on a policy from your agent.. from my understanding in jim's case he is at risk.. if he makes anything for another.
 
If you are talking about, a customer may for some reason - come back at you - then there are different levels of "protection" that you may need.

FIRST - if someone falls off a chair that you built and decides to sue you - WHO - are they going to sue?
If they sue YOU - then YOU - are liable, and could loose anything YOU own.
YOU - could loose your car, house, savings - or leave it all to chance or something that somebody told you.
That will NOT will a court battle in court.

HENCE - the reasoning behind a corporation.
What a corporation does is to SEPARATE , YOU - from - your business

NOW - WHO - gets sued?
The corporation will get sued and anything that the corporation owns is fair game.
The corp does NOT own your house, car or savings.

That is one level of protection

SECOND - the corporation can carry liability insurance
If you do a job for a customer and they blame you(the company) - for a BIG DIG that you put into thier hardwood floor - either you(the company) or the insurance pays for it.
I carried one million dollar coverage when I had my Mr. Handyman Franchise.

If you are just working on your own, you can have your customer sign a waiver that you create taking all responsibility of liability off you and onto the buyer. They may not like that, but you alternative is to "take a chance" and hope for the best. I am confident that the chance will bite you eventually.

So - my first recommendation is a Corp. I had an "S"-Corp - but you can agrue the pro's and cons of the different corps in a different thread.
 
Rennie, if the tablesaw is used in the business, it is not covered under your homeowners. There is total separation between assets of the business, and personal assets, including your home. Back to your agent. Ask him/her this question, if a fire began in the garage/shop, which insurance package would cover the loss.
 
I'm in Louisiana and have been out of business awhile. However, just went through the insurance mess after Hurricane Isaac. First, the insurance sold was what was quick, convenient, and profitable! Full of more holes than a sieve. The level of documentation required was ridiculous also. For starters do a walk through with video and photographs. Log serial numbers for anything over fifty dollars or whatever you are not prepared to lose that has a serial number. Listing 24 screwdrivers doesn't get it either. We spent several weeks, long days, seven days a week, documenting loss. Then we had a battle concerning loopholes. Also parts of the policy had been updated but not others. Twenty year old policies that hadn't been fully reviewed every few years are pretty much worthless.

About being sued: I was sued a few times. Considering the type of business I was in with very active storefronts that might have been one in ten thousand customers or a lot less. Anyway, never failed that the corporation and the owner(s) personally were sued. I never figured out a thing the corporation did for me. It added paperwork and I got to pay a lot of extra taxes.

Getting the umbrella policy is an excellent idea. If you have a loss that may make the insurance company squabble between divisions instead of trying to rape you. However, don't be surprised if you have a $50,000 primary policy and the primary insurance only pays $30,000 when losses were $70,000. Next your umbrella will probably claim that your primary wasn't maxed so they owe nothing.

Dot the i's, cross the t's, then know if you have a big loss or lawsuit you will probably be up to your rear in alligators! I had one insurance company that worked like a champ when I was broadsided by a guy wearing flipflops when I was driving my wrecker. The state put them out of business a few years later!

About thirty years experience with business insurance, lawsuits, and losses. I could tell a handful of horror stories but enough said that I am sour on insurance and legal shenanigans. Been out of business for a good many years now but while details may have changed I suspect general manners of operating haven't.

Not a lawyer, didn't stay at a Holiday Inn Express last night. However it might be a good idea for some to look into both hobby and cottage industry designations. Sometimes it is cheaper and better to just be an individual with a hobby.

Hu
 
One note to add on the corporation thing.. They can help, but you have to be real careful to cross the i's and dot the t"s. The formal term for being personally liable for the corporations debts is "piercing the corporate veil" and can lead to the owners, the officers, or in some cases the board being held directly liable for finances that you'd hope would be under the corporation.

The most common mistake folks make is not strictly separating the corporations assets from the individuals or signing loans or paper work in a way that it's not clear your acting on behalf of the corporation but there are a bunch of annoying ways you can get tripped up.

A fairly high level but readable overview can be found here:
http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html

More about personal liability oopsies here:
http://www.nolo.com/legal-encyclopedia/business-debts-personal-liability-29905.html

As Hu noted a lot of times when something bad happens the "aggrieved party" (or more often the inns company on the opposing side) just dues everyone. On the upside of you've done it all right the company as an entity can often take the brunt of that which may help protect your assets.

Also not a lawyer, have never stayed at a holiday inn but am perhaps slightly paranoid.
 
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