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? 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