Insurance company refuses to cover me since I have a wood shop

[Tony Pisano]

My girlfriend/partner got a letter from her insurance company last month saying they were dropping her homeowners insurance. The reason they gave was that she was running a business out of her home. The real reason was she called them during the late fall, early winter because a heating pipe had leaked and caused some water damage. She had a plumber inspect it and he said it was a failed solder joint. The insurance company made her submit a few months of gas and electric bills and said that the amount she paid was low so the pipe must have frozen. They refused to pay the claim. Jump back to now, and when she asks about the home business, she is told, "you are selling honey from you house" Apparently, when the adjuster came they saw the little paper sign she had drawn and put in the window saying Honey, and the 3 or 4 jars she keeps on the front porch, so people can pick it up their instead of driving the 5 miles to my house. I wouldn't exactly call that a case of operating a business from home, but insurance companies' objective is to take your money, but fight tooth and nail to keep from ever paying any back to you.

[Don Parker]

I want to offer a perspective. Not the only perspective, but one that comes from dealing with insurance policies pretty much every day.

Every insurance policy has exclusions; things that the insurance policy does not cover. One can draw the conclusion that the insurance company does not want to cover those things, and for some exclusions, that is true. However, for many of the exclusions that people encounter, the real reason for the exclusion is that the insurance company wants to sell you a separate insurance policy for that thing. Example: there is always an exclusion in your homeowners policy for things that involve cars, boats, aircraft, etc. There is always an exclusion in a homeowners policy for commercial activity. The insurance company (or a different insurance company) will definitely sell you a policy for each of these separate things, but it will cost you a separate premium.

This is why I recommended earlier that you be very straightforward on any application. There is insurance available for just about anything you want to do. You just have to properly define it and pay the right price for it. That's where an independent agent is important. That person can really help you buy what you need.

[Robert Engel]

What happened is you opened a can of worms because the insurance company now considers you a business. The problem is the shop being in the same building as your house. If you had a detached dedicated building, you should be able to get a business liability/property policy that any other commercial woodworking shop could get, but be prepared for a hefty premium!!

Not saying this is you, but I've seen things like this happen when people try to make a hobby a business for tax write off purposes.

I don't know what you're selling, but maybe you could be more specific as to why you need an LLC to sell a piece of furniture or cabinetry? If you don't have any employees it seems to be not necessary to me.

If a business buys something from you just declare the income and keep the invoices. If its only $2K/yr it wouldn't be worth the aggravation you are experiencing.

If, however, you are installing cabinets, for example, or have an employee, a business is likely to want to see licensing and insurance -- in which case its no longer a hobby. ;-)

My suggestion is get another quote and don't say anything about being a business. You need insurance on your house way more than your shop.

If your hobby turns in to an actual functioning business making a profit, then you need to get a business license and insurance.

[Peter Aeschliman]

I don't know what you're selling, but maybe you could be more specific as to why you need an LLC to sell a piece of furniture or cabinetry? If you don't have any employees it seems to be not necessary to me.

If a business buys something from you just declare the income and keep the invoices. If its only $2K/yr it wouldn't be worth the aggravation you are experiencing.

Agreed. If you don't have employees or partners in your business, then I imagine you have a Single Member LLC. In which case, the IRS treats the income as a sole proprietorship anyway. So the only reason to have an LLC would be for liability reasons to separate your personal assets from the business. That way, theoretically, if a customer sues you, they can't come after your personal assets.

In which case, it's really important to talk to a lawyer about maintaining the "corporate veil". Which can be hard to do if you don't do things like maintain separate bank accounts and insurance policies, make it clear to customers that it's a separate entity, etc. I'm no lawyer, but my wife has a single member LLC. If you don't maintain the separation, then the LLC is worthless for personal liability protection.

And a lawyer may advise you that it's just not worth the hassle for the types of items you're selling (if they're low risk) or the income level.

[Yonak Hawkins]

I recommend going with an independent insurance agent to find you a policy. It's a waste of your time to search the insurance companies yourself as that's the job of the agent. After my insurance company (Farm Bureau, which I would not recommend for any insurance needs) dropped me for the same reasons yours dropped you, I went to an independent agent. They found a company for me that not only insured my house with the wood shop, but also offered a very inexpensive rider that covered my in-house business.

[Nicholas Lawrence]

Don't lie or withhold information from the insurance company. You don't want to be in the position of learning you voided your coverage while standing in front of the smoking ruin of what used to be your house. Better to just be straight with them. The little bit you might save on premiums is not worth the potential problems down the road.

[Jim Stanley]

With over 30 years of claims experience in residential property; Be honest with the agent and get it in writing!
Homeowners policies generally exclude or limit a business related claim - READ YOUR POLICY, if you don't understand something, ask your agent to provide an explanation and maybe an example. DON'T ASSUME, IT MAY COST YOU$$
There are various policy forms, some only cover "NAMED PERILS" while others are "ALL RISK" unless otherwise excluded - ALL policies have limitations and exclusions. You must read the entire policy and not just what you think pertains to your situation. It is common to see something is covered only to find it may later be excluded. A policy may also have additional coverage or exclusion by an endorsement. In the event you may have a loss, verify the adjuster is properly licensed and ask how long they have been processing property claims. Be very cautious of "Storm Troopers" that are subcontracted by the insurance carrier and travel from other states.
Regarding Matt's situation, the fact that you state the shop is attached to the home prevents the company from excluding or requiring a separate endorsement as it is considered part of the dwelling.

[Dan Rude]

We had a homeowners insurance dropped due to excessive claims. One was a theft of personal tools from my truck, then storm damage and frozen pipes before we moved in. All this was not claimed on the companies policy but on previous insurance. State Farm lost me years ago because they would not cover my audio electronics which I wanted to schedule. Dan