Business insurance questions

[Matt Day]

I'm starting a small part time furniture making business and have a couple questions about what type I need. Let me first stress the word small. I am a full-time stay-at-home dad with two young kids, and I would be doing this in some of my spare time while they are at preschool. My shop is in my basement and I will be the sole proprietor. I am not going to be batching out furniture, I will most likely not sell more than $10k a year and we don't need this income - it's essentially an extension of my hobby that I'd enjoy. I do however want to do this the right way; I have an LLC and EIN, am making a website, and will also make business cards.

I plan to make custom furniture such as dining tables, benches, coffee tables, desks, bedroom sets, etc. No chairs most likely.

My main question is about liability insurance and whether or not I need it given my circumstances. I will not be installing anything in anyone's home, clients will not come to my home, and I don't see much risk where I would need liability. But I am no expert and wanted to see what others are doing. Maybe I answered my own question when I said I want to do this the right way, but I also don't want to spend money unnecessarily.

I know I need coverage for equipment and I am inventorying everything this week to come up with a replacement cost.

If any other small business owners in a similar situation could chime in with how they have their business structured, I would greatly appreciate it.

[Jim Becker]

You probably should speak with an independent business insurance specialist to see what makes sense for you. Even though you will not have "visitors" or be "visiting", there's always the potential for liability concerns with the product, itself...that may or may not be a factor here.

But more importantly, you need to speak with your normal insurance agent about the implications of operating your business from your house and using your heretofore woodworking hobby shop to produce product for a small business. Some insurance carriers don't mind incidental business activities like this; some with start throwing things at you or even cancel your policy.

[Evan Stewart]

I am by no means an insurance agent nor a business advisor. That being said I do have personal experience with insurance in several businesses of varying size. I currently have an LLC that I carry a state contractor license and a $5 million liability, workers comp and a $100K bond. This is the business that I use to do construction and renovation and has 3 employees. For my custom work I use a separate business that is a sole proprietorship I do carry a $1 million liability for that along with tool coverage. A million dollars is way more than I would ever need but liability insurance generally starts for my needs around this level. The policy for my sole proprietorship only costs around $650/year and it covers all my equipment.

I would imagine that you could probably add your equipment to your homeowners policy and if you are only building furniture and not doing any work at all in customers houses including delivery you would probably be ok.
2 things that come to mind:

1. Some homeowners policies may not be willing or able to insure your equipment if it is tied to a home based business that is not independently insured. Your agent would have the answer.

2. Having liability insurance can give customers more peace of mind and there are some advertising entities that require it. Besides the skill necessary to complete the project, customers also want to feel that they are not risking financial liability as well.

That's just my opinion.

[Matt Day]

Thanks for the comments guys.

Jim - I've talked to 3 insurance agents so far. My current insurer, and two independent. Two have included the following liability:

Coverage Provided : Limit of Insurance
Each Occurrence Limit $1,000,000 Per Occurrence
General Aggregate Limit (Other Than Products-Completed Operations) $2,000,000
Products-Completed Operations Aggregate Limit $2,000,000
Personal And Advertising Injury Limit $1,000,000 Any One Person or Organization
Damages To Premises Rented To You Limit $1,000,000 (Any One Fire or Explosion)
Medical Expense Limit $15,000 Any One Person

The third asked me if I needed liability given what I plan to do - I wasn't sure so I flipped it around and asked her to ask the expert in her office.

My current insurance provider is okay with a home business, but they quoted me $1300/yr (with equipment coverage at $40k which was a guess). That would eat a lot of profit for my small operation. I've asked the other agents to include home/auto/business into one quote.

Evan - The way I understand it, if the equipment/tools are used by the business it would not be covered by homeowner's insurance. I would need a separate rider for it or business policy.

[Lee Schierer]

I don't know where you live, but you need to make sure your local zoning allows small home based businesses. Some zoning does and some does not. Running afoul of the zoning could prove costly.

[Evan Stewart]

Matt, the policy you quoted above is essentially the same coverage that I have for the custom carpentry sole proprietorship part of my business. My policy runs me approx $650 Main Street Insurance is the underwriter but it was purchased through a local broker. I did add additional coverage to our homeowners policy for fire and water damage beyond our normal policy.

The problem you are looking at right now with the costs and logistics of a new business in this field can definitely be frustrating for Sure! One of the reasons I significantly downsized the general contracting side of the business was the overhead. I live in the Washington D.C. area and in order to work in DC, maryland and Virginia we are required to have redundant liability and workers comp in all 3 places approx 60% of net income.

As Lee mentioned you should definitely check with state and municipal for the business restrictions and other requirements. A friend of mine that is doing something similar to you found the best way for him to get his product out without having to spend a huge amount of money was to sell his pieces through an artisan guild. By setting it up this way he was able to avoid some of the business requirements where we live as it was considered "manufacturing crafts". Your next stop should probably be your town hall. They will be able to let you know what requirements and restrictions you may havr on your property. I wouldn't decide on insurance until after checking with the town since they may have an insurance or bonding requirement.

[Don Jarvie]

Maybe this is going against the grain but before you sink a ton of money into this sell a few things and go from there. You can make sure your homeowners policy will cover your tools and get a few orders. If the orders start coming in you can consider starting a business. Keep in mind Uncle Sam and the State will have their hands out too.

To make any money you really need to crank out the pieces unless your just looking to support the tool fund. Also if the client isn't in a rush great. If they are you may want to pass on you. Start with family and friends and see what happens.

[Matt Day]

Lee - I have confirmed that this is allowed and no permit or anything is needed. Basically just no large truck deliveries or signs in my front yard.

[Nicholas Lawrence]

Keep in mind there is tremendous variation from state to state, insurer to insurer, and policy to policy. You really need to be sure you are getting good advice from a licensed broker in your state.

[Mark Bolton]

I am by no means an insurance agent nor a business advisor. That being said I do have personal experience with insurance in several businesses of varying size. I currently have an LLC that I carry a state contractor license and a $5 million liability, workers comp and a $100K bond. This is the business that I use to do construction and renovation and has 3 employees. For my custom work I use a separate business that is a sole proprietorship I do carry a $1 million liability for that along with tool coverage. A million dollars is way more than I would ever need but liability insurance generally starts for my needs around this level. The policy for my sole proprietorship only costs around $650/year and it covers all my equipment.

I would imagine that you could probably add your equipment to your homeowners policy and if you are only building furniture and not doing any work at all in customers houses including delivery you would probably be ok.
2 things that come to mind:

1. Some homeowners policies may not be willing or able to insure your equipment if it is tied to a home based business that is not independently insured. Your agent would have the answer.

2. Having liability insurance can give customers more peace of mind and there are some advertising entities that require it. Besides the skill necessary to complete the project, customers also want to feel that they are not risking financial liability as well.

That's just my opinion.

Not meaning any offense at all but these numbers, in my experience, are extremely optimistic. I dont hear of many people at all getting a million dollars for less than $1k/year (more like 1200-1400) and thats just straight liability. We for instance, with 200k for the builing, 350k for contents, and a million in liability, would likely pay somewhere in the 4K plus range.

For just liability, if your not dealing with the end user (selling wholesale), have 2-5 employees, do NO install work whatsoever, it would be somewhere in the 1200-1500 range. Might chop that by a third if you set it up with no employees.

I have personally never heard of anyone in my area having a policy for sub $1K.

If you open your policy up to installs, delivery of any kind to the end user, if you have ANY hand in the design or implementation of the project, and so on, your numbers go up substantially.

We deal primarily with architects and designers and do ZERO install work. That gets us down in the low $1k range, with employees and payroll. If we opt in for ANY of the above, the number goes up.

P.S. If you do ANYTHING pertaining to kids in ANY WAY, toys, beds, toy boxes,.. Virtually every underwriter/insurer out there, will just say, you are ineligible with us. There is no small shop that could ever attempt to afford the coverage required to include the word "kid" or "kids" in their policy. There are probably 3-4 companies in the country that will write that policy.

[Jim Becker]

Mark, insurance is regulated state by state, so that's going to have an effect on rates as well as what carriers offer coverage. It doesn't sound like the OP will have any employees, so a lower rate for liability on a part-time business doesn't sound unreasonable to me. But I haven't looked into it for here in PA as my commission work has been minimal. That might change if I decide to partially retire in a year or three...

[Mark Bolton]

Mark, insurance is regulated state by state, so that's going to have an effect on rates as well as what carriers offer coverage. It doesn't sound like the OP will have any employees, so a lower rate for liability on a part-time business doesn't sound unreasonable to me. But I haven't looked into it for here in PA as my commission work has been minimal. That might change if I decide to partially retire in a year or three...

Jim, I agree, but there is a low end threshold. And I may well be wrong, and it may be due to some blanket coverage, but I dont think $700/year is anywhere near the low end threshold. There is just a cost for getting in the game. Im sure as you say in certain very rurual states there may be exceptions to the rule but in talking to a lot of fellow shop owners the variation is on the order of tens of dollars not hundreds.

[Nicholas Lawrence]

Moving from Maryland to Virginia my auto rates dropped by something like 1/3 (same insurer, same coverage, same vehicles, same annual mileage, same drivers).

The regulatory and legal environment can make an enormous difference.

[jack duren]

I don't see why you would need to worry about any of this. Nothing requires you to install anything...

[Matt Day]

Jack, surely equipment coverage at least right?

That's where I'm struggling - where is the liability? The only thing I could think of that has really any chance of happening is a heavy person sits in a chair I made and it crumbles and a leg goes where the sun don't shine and I get a lawsuit filed against me. Sorry, I digressed there, but you know what I mean. What liability issues do I really have with tables, desks, bedroom furniture, etc?

I've gotten a lot of responses but I don't know how many have their own furniture business. I'd really like to hear from folks that are in business, not just speculating.