Woodworking business owners: Coverage rates

[Andy Pratt]

I should preface this by saying that I'm a relative novice to the whole area of self employment. Based on advice from my tax guy, I officially started my business last year (I purchased a lot of expensive equipment last year). While making an unrelated insurance inquiry today, I discovered that my homeowner's policy only covers $2500 worth of business property. I currently have about $35000 invested in my equipment in my shop (my whole life savings), so you can imagine that I'm fairly concerned about this discrepancy and want to fix it as soon as possible. I will try to get insurance for, at a minimum, by business property within the next few days. Since I'm on the crunch I am at a loss to get good comparisons. Can I ask those of you that have it what you're paying for insurance (hopefully this isn't a breach of etiquette)? I'm just trying to get a ballpark to make sure I'm not getting hosed by my lack of knowledge and desire to act quickly on this.

Thanks,
Andy

[Karl Brogger]

Insurance? Whats that? :D My best advice to you would be to cut your losses and run. I've been on my own for 4 years. It sucks. Most days I hate it. I made more money working for someone else and doing side jobs for cash.

[Jim Becker]

Andy, talk to a local independent insurance agency that specializes in business insurance.

[Joe Unni]

Andy,

About 4 years ago I had to bump my $300,000 liability policy up to $1,000,000 just to move into the space I just vacated today. :( Along with the liability it also covered $5,000 in equipment replacement. For that I've been paying about $1300 per year. When I inquired what it would take to increase the equipment replacement coverage, they said it would depend on what the equipment dollar value was. Though a bit foolish, I just never did it. I was already stretched to the max as it was and couldn't afford any increase.

As Jim mentioned, you might want to check with your insurance person.

Good luck,
-joe

[David DeCristoforo]

As suggested, you really need to talk to an agent. But I think you need to be very careful about selecting the agent and researching the carriers he deals with. Price is not the biggest issue. Many agents can get you a "good price" but they do so by setting you up with a "second rate" carrier that will bail on you when you need them. You need coverage for the "replacement cost" of your equipment as well as your "infrastructure" (DC system, wiring, the building itself if you own it, etc.). That's a term that is got a lot of "wiggle room" in it. Then there is the issue of how many "loopholes" are created by the fact that your business is "home based". If you are "off" on your zoning compliance by even a tiny bit, an insurance investigator can use this to deny any claim you may have to make. Finding someone who will sell you the policy and take your money with a smile and an enthusiastic handshake is not too hard. But finding one who will be there when and (god forbid) you need them....that's another thing entirely.

YM

[John Keeton]

In most situations, you can get coverage beyond the line item limit by "scheduling" (listing) the additional equipment and paying for additional coverage based on value - so much per thousand. I would want to have the agent give me a letter stating I was covered. At that point you are either covered under your policy - or under his errors and omissions policy for making a mistake. With the property being "business property", this may present a problem.

Insurance is like any other business - you need to shop it. But, most of the policies sold are state approved forms and are very similar. Rates can vary widely, and your insurance is only as good as the agent!! You are buying advice and coverage.

[Andy Pratt]

Thanks for the advice, particularly in the details of how insurance companies can wiggle out of fulfilling their end of the bargain, I'll definitely be able to ask more intelligent questions now. I'm curious about getting a letter from them stating that I am covered. It seems like the insurance policy would make this redundant, and that any agent would be unlikely to write a simple letter promising coverage without the whole policy attached providing the conditions for coverage. Is there a specific name to what i should be asking for beyond the detailed description of policy coverage?

Thanks,
Andy

[John Keeton]

Andy

I am not familiar with Washington's approved insurance forms, but all state regulatory agencies approve basic policy formats. Yours probably has certain limits on things such as firearms, jewelry, etc. Apparently, yours also has a limit of $2500 on business property. You should be able to purchase additional coverage by listing the equipment and paying the extra premium, but I would want my agent to give me a one sentence letter that says that my "business equipment" as listed in the attached schedule has been added to my homeowners and is covered at replacement cost not to exceed $35000. You don't state whether your shop is in your home, but responses have made that assumption. If not, you should be certain that off premises coverage is provided. Most homeowners policies will cover a certain amount of personal property temporarily off premises, but not in permanent use off site.

[David DeCristoforo]

"Most homeowners policies will cover a certain amount of personal property temporarily off premises, but not in permanent use off site."

It all about the "fine print". READ THE FINE PRINT!!! All of it. Most policies have enough to make a book. A good agent will go over every detail with you. If they don't and you don't understand every detail but sign the policy anyway....well then that's just asking for trouble later. It's like "Oh...didn't you read the part about how you have to dip your policy in lemon juice to make the rest of the exceptions appear?" If ever there was a "buyer beware" situation, this is it.

YM

[Craig Kershaw]

I've been involved in buying millions of dollars of commercial insurance for about 20 years now and would offer the following:

* Talk to other folks in contracting business in your area and find out who the brokers are that specialize in servicing contractors/construction people. Insurance is like any field, people specialize in things, look for brokers that have a lot of contractors as customers. A good insurance broker is just as important as a good CPA or banker.

* Ask for a sample policy and read it. Have the broker explain it to you. Insurance claims can make or break you. Do not assume you have coverage for ANYTHING unless you read it in black and white.

* Ask what the coverages are, dollars, limits, and deductibles. But more importantly, find out what the EXCLUSIONS are! Most insurance policies have a page or two about what the coverages are, but many more pages about what is not covered. Again, NEVER assume risks are covered!!

* Realize that insurance brokers and underwriters have a never ending need to know about your business. You will be amazed at the type of questions they will ask. Never hide anything from these folks, remember, unlike the government they really are there to help.

* Ask the insurance guys/gals what loss prevention services they offer. Small businesses can't usually afford safety or loss control managers but most insurance companies will provide these services free of charge. Take advantage of this.

* Shop your insurance. Find two or three top quality brokers and shop your business. Let them all know you are shopping it and you want pencils sharpened.

Hope this helps.

[Jamie Buxton]

What are you insuring against? Fire? Theft? Flood? Liability? Each has different exposure to you, and different possibility of occurance. And those factor into how much you pay. For my shop, I think that fire or flood are low probability. Theft might be the biggest issue. However, my most expensive tools would require a truck and several guys to remove, and a skilled woodworker to operate. That is, I don't think they're like to evaporate. What is more likely to go to a thief is the small equipment which can be quickly fenced. However, replacing the small stuff may not get above the policy deductable unless you pay a giant premium.

[John Lucas]

I don't know if this was correct, but when I was a video producer, I had about $25,000 camera and equipment that would go on the shoot with me and antehr $45000 in editing equipment. Getting coverage was not the problem; getting coverage that covered the stuff was. The broker said that coverage of business equipment in a residence would not hold water. I coul dincrease the homeowners amounts but that too wouldnt cover...because not in proper zone.
And the cost was exhorbitant.
So I increased the alarm system. I had two breakins and both were caught in the act. It was a silent alarm.
Now my shop is protected by being very, very messy, A burglur will kill himself trying to walk thru it.

[jim oakes]

If you have any assets, liabilty is the big thing. I would have enough liability insurance to cover your net worth and future net worth(your future earnings can be garnished). You may be able to incorporate and save on liability but talk to a lawyer to be sure.

All it takes is one bookcase to fall on a child and you could get sued. Even if you did your work up to established standards you have to prove it in court.

I had a wood business and my product liabilty was $150 a year in the 70's, 80's and 90's.Now I'm retired but I want to make a few pieces to sell. The quote I got on liability alone were around $1500 and that was if I grossed less than 10K a year!

I won't take the risk of losing my house and investments just to do a few side jobs. Unfortunately that is the world we live in today.

On the tools and machines I would keep the deductible high and only file a claim if you have a major loss. Your rates go up so much after a claim nowdays that only reporting major losses makes sense.

Shop around for prices and agents. I got a TON of unbiased insurance info by calling my state insurance regulator. After all if you talk to an agent it may get "on the record".

[Paul Downes]

I am in the same boat so to speak. I did talk to my homeowners insurance agent and he said it is a good idea to video tape the shop and keep an updated tape handy in case of a fire. or other loss. I have not as of yet officialy launched a business, but am working toward that now because I am being forced to retire from my current job.
My impression was that I would pay for replacement insurance at a % rate of the value. It usually does help to have multiple insurances with the same insurer because they usually offer discounts for that.

I would definantly read the fine print. We had a tornado go through the neighborhood a few years ago. It missed our house by 100 yards or so. Some of the neighbors weren't so lucky. I heard several horror stories from some of them who thought they were covered but found out that for rather lame sounding excuses they weren't covered that well. I generaly ask some rather pointed questions when considering insurance purchases. Good luck.

[Mark Rakestraw]

My homeowners policy not only won't cover business equipment, but neither will it cover the building that the shop is in (a separate out-building). I have a separate "contractor's" policy that covers liability, tools, and the shop building. It costs me a little over $2000 a year.

Mark

[Jeff Duncan]

Although it's been said I just wanted to re-state that Liability insurance is even more important than insurance to cover your tools. Sure $35k is a fair amount of equipment, but if your sued for damage to someones residence you could be talking hundreds of thousands or more.
My policy is for $2 mil., or $1mil/$1mil, for liability, it also covers my shop and the contents of, and also my work should anything happen between my shop and an install. It costs me about $1500 yearly and is worth every penny for the peace of mind knowing my backside is protected. My next step is going to be looking into changing from a DBA to a Corp or other to protect even further. In this sue happy county it's much more important to cover your butt from lawyers than anything else.
good luck,
Jeff

[jim oakes]

I am in the same boat so to speak. I did talk to my homeowners insurance agent and he said it is a good idea to video tape the shop and keep an updated tape handy in case of a fire. or other loss. I have not as of yet officialy launched a business, but am working toward that now because I am being forced to retire from my current job.
My impression was that I would pay for replacement insurance at a % rate of the value. It usually does help to have multiple insurances with the same insurer because they usually offer discounts for that.

I would definantly read the fine print. We had a tornado go through the neighborhood a few years ago. It missed our house by 100 yards or so. Some of the neighbors weren't so lucky. I heard several horror stories from some of them who thought they were covered but found out that for rather lame sounding excuses they weren't covered that well. I generaly ask some rather pointed questions when considering insurance purchases. Good luck.

Hi Paul, Even if you haven't "officially" launched a business, even if you sell 1 item, you need liability. No your homeowners liability won't cover you.

Take this example:
You sell a TV cabinet. It tips over and injured a person. The homeowner installed it wrong or didn't attach it. Even if you told them "this must be screwed to the wall"or "don't put X size TV on the top shelf". You are named in the lawsuit. Lawyers will hunt you down to get a percent of the possible winnings.

I haven't sold anything in over 10 years but I still keep my proof that I had product liability when I was selling furniture.

No I'm not an insurance agent. I worked hard for what I have and don't want to worry about even a nuisance suit.

.

[Andy Pratt]

It's been good to read all the various replies. I think I'm heavily leaning toward a full package of coverage, to include tools, premises liability and product liability. It sounds like a minimal package is about $1500/yr., so I guess that's just a cost of doing business.

thanks,
Andy

[Joe Jensen]

I do not have a woodworking business, but I have several close friends with their own businesses. I would start with an attorney who focuses on LLCs (limited liability companies). These are a relatively new (less than 10 year old) form of legal entity the gives the same legal protection of a corportation without all the required structure. Also, they are relatively cheap. Here in AZ, the investors who buy rental homes have a separate LLC for each home, and they run the business through an LLC. I have a friend who buys and hold small businesses. He creates one LLC that holds all the real assets, and creates another LLC that operates the business and that business leases the assets from the first LLC.

Based on my understanding, I think you could set up one LLC to own the assets. Protect those assets from fire and theft, etc. Should be relatively cheap. Then run the business as an LLC that leases the assets from the first one. If you have a lawsuit, the LLC that does business with the customer has no assets, and your personal assets are sheltered via the LLC.

I'm not an attorney, and I don't know much about this stuff.

[Jeffrey Schronce]

The first thing you will want to do is actually speak to someone in underwriting of the company that you have homeowners with currently. Your carrier may allow increase of business property under your homeowners policy. This will give you the same named perils damage afforded by your homeowners policy. The premium will be much cheaper this route if the carrier allows increase of business property for this class of property. Most carriers will increase office equipment, beauty salon, etc type of equipment, however only a few will increase tools. Likewise, often carriers will extend coverage for business pursuits depending upon class. Usually this is available only to sole proprietaries with no employees, etc.

The reason that I suggest contacting an underwriter at the company is that they are vastly more experienced and knowledgeable than 97% of agents. Agents, for the most part, are merely sales people who have very little product knowledge, particularly in the personal lines markets.

If you have to get a business policy you will want to get a Business Owners Policy (BOP). Usually, the minimum premium is around $1,000. This will get you $50,000 in business property and $300,000 of general liability. You also may need to be concerned about product completed, etc types of coverage. Your biggest issue that it will be difficult to obtain the policy with little business experience. You occupational class is a little difficult to insure, especially if you have a employees, due to possibilities of accidents, etc.

As far as shopping around, etc it is pretty much a waste of time. Someone suggested getting an agent to write you a letter guaranteeing coverage in event of a loss, thus providing you coverage through his/her E&O policy. 1) That would be the worlds stupidest agent and 2) the E&O policy would not respond as it would not cover intentional acts of insured trying to create his own policy contract. That is just crazy.

As far as the shopping around for price thing, again I believe it is a waste of time. First of all, the premium variance there should not be more than a couple hundred dollars. Second, until you have an established track record as a business your premium will reflect same. Third, any agent that knows what he/she is doing and is actually competent will not waste the time dealing with someone calling shop to shop looking for price quotes. This is a monumental waste of time for a professional (you very often see the same business philosophy here concerning commission woodworking). If you get an agent who tells you this, then you may have actually found a competent party. Lastly, every policy has exclusions and conditions. Flood is not covered. Intentional acts are not covered. Water seeping through foundations is not covered. Rot is not covered. Named peril contents policies do not provide coverage for water damage from the exterior of the property unless a hole is made in the roof . . . there are tons of conditions in all policies. The thing is you want a standard ISO form BOP with replacement cost for contents. Get that and you are about as good as you can get.

[John Keeton]

[quote=Jeffrey Schronce;802109]Someone suggested getting an agent to write you a letter guaranteeing coverage in event of a loss, thus providing you coverage through his/her E&O policy. 1) That would be the worlds stupidest agent and 2) the E&O policy would not respond as it would not cover intentional acts of insured trying to create his own policy contract. That is just crazy.

Jeffrey

If you will read closely the comments I made, it was a suggestion to see if he could have his extra tools "scheduled" under his policy, and I did not state "guaranteeing coverage." The letter would simply confirm the particular tools added to confirm serial #'s and description. I have done this on firearms for years. The letter does not extend the terms of the policy, nor modify the contract. It can't create coverage where none exists. The letter simply identifies particular items for which an additional premium is being paid. The original post suggested there was a small limit. Oftentimes, additional limits can be purchased for scheduled items, but I cautioned about whether a business purpose would be covered and commented about off premises personalty.

I thought your comments regarding suggestions on a BOP policy were on point, and the best suggestion. At the time in the thread when I replied, there was an effort to see if coverage could be obtained on a homeowner's policy, and I clearly stated that I knew nothing of Washington's form policies. The discussion had not developed to the point of a BOP policy, which is obviously the best choice.

[Andy Pratt]

Jeff, Thanks for the insightful advice, that gives me a much better idea of what I'm dealing with. It probably also explains why my number 1 choice hasn't been making any crazy effort to get back to me on my request for a quote. He's helpful and professional, he just doesn't seem to be making any leaps and bounds for me, and based on what you said, now I know why. As soon as I get a detailed policy quote back (and likely sign up for it) I'll let you guys know.

Thanks,
Andy