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January 20, 2016

DOES MY SMALL HANDMADE BUSINESS NEED INSURANCE?



The laws around insurance and insurance itself vary depending on where you operate your business and the type of business you operate, which is why this article is full of "likely", "generally" and "may". Generally, having insurance to cover your small business is not enforced, it’s more of a strong suggestion. Many small businesses believe that if they have home and car insurance, they can call it a day but unfortunately that’s not so. You may have some coverage under them but generally you need extra if you want your property and butt to be covered in the case of an accident or lawsuit. Check with your insurance agent or broker before you start a business to see what is covered under your existing plan and what you should have.

This article is an overview of the insurance your small, handmade, home-based business might be interested in.

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What are the different types of insurance?

There are several different types of insurance but generally the main ones a small handmade business would be interested in are:

  • Property Insurance – in a nutshell, it protects your stuff. It will pay to replace or repair your property (i.e. equipment, inventory, supplies, buildings, etc.) if they are damaged in an event the insurance company deems acceptable; fires may be covered but floods may not, it all depends on your policy.
  • Liability Insurance – this one basically helps you out if someone wants to sue you. When someone gets hurt or their property gets damaged due to your business, they may file a lawsuit, in which case liability insurance would cover or help cover your legal fees and any fees you have to pay upon settling or losing a case.


Why aren’t I covered under my home and car insurance?

Generally, unless you extend your current home or car insurance policies to cover your home-based business: your business equipment, tools, inventory, etc. may not be included under your existing policy or if they are, it’s very limited. Even if you do purchase a rider on top of your existing insurance, it likely won’t be as extensive as separate coverage.

You likely have some liability coverage under your home and car insurance to cover your fees if someone slips and falls on your property or you cause harm in a car accident. But when the insurance company starts asking you questions about the accident and you tell them the injured party was in your home for business or the accident happened on the way to a craft show, they’ll deem it business related and not covered under your basic policy.


But wait! Before you make that call….

A word of caution: some insurance providers consider running a home-based business a violation of their policy terms. I’ve had a few friends tell me that once they talked to their insurers, inquiring about additional coverage for their home based business that was already in operation, their insurance company gave them 2 weeks to find another provider as they were cutting them off their current coverage. Be sure that you look into insurance before you start your business and if you’re already operating, take a look at your existing insurance to be sure you’re not breaking any of their rules. If you are, start looking for a new insurance provider immediately.


What type of liability insurance might I need?

Liability insurance is to help protect you in the case of a mistake. A mistake made by you or caused by your product or service and that ultimately hurts or damages another person or their property. There are also different types of liability insurance and again, these vary by country and company. Your business will likely be interested in these 3 types:

  • General liability – can protect your business against claims for bodily injury or property damage to a third party resulting from business activity (i.e. your products or services, visits to your home, etc.)
  • Product liability – can protect you if your business manufactures products, which can potentially cause damage or injury.
  • Professional liability – also known as errors & omissions insurance it can protect your business in the case of harm due to mistakes or negligence.


But aren’t I covered through the craft show or venue’s insurance?

If you sell through craft shows, the venue or organizer will have limited coverage of their own but coverage and claims can be expensive so they may require that vendors also have coverage so they’re not stuck with all the costs. Some events specify in their terms that they are NOT liable for any loss, damage or injury that occurs to people or products at their event and some will actually require proof of insurance from their vendors.

If the event has their own coverage and doesn’t require that you have insurance as well, you may still want to look into what they are actually covering. If it’s an outdoor event and injury happens due to: one of your products, your display props or your tent blowing over, you may be held responsible.

Although you may be partially covered under the event’s insurance, it won’t cover you if someone takes one of your products home and gets injured by it or causes damage because if it. Keep that in mind if you’re selling higher risk products such as cosmetics, children’s items, candles, etc.



What if I only need insurance for 1 show?

If you feel you’re selling low risk products and don’t really need coverage throughout the entire year, you can look into short-term coverage. Some companies will offer coverage by the day so if you’re attending a craft show that requires you have insurance to cover any injury that might happen at the event; this may be a good fit for you. Again, this won’t cover you or your products after the event is over so if you’re selling candles that might cause damage to someone’s home, you may want fuller coverage. It depends on the policy; your property may or may not be covered under this type of temporary coverage.


What is inland marine coverage?

This may be a good option if you need property insurance on top of your temporary insurance mentioned above. The name no longer reflects its use as it originally covered products in transport over water. Now it refers to coverage for your goods while they are in transit in general (water, land, air) or temporarily being displayed, such as at a craft show. This type of insurance covers property and will not cover you against any injury claims.


What does liability insurance cover?

Below are some examples of situations that different types of liability insurance can help protect you in. These are just examples and if you’re actually covered and how much coverage you have would depend on your policy.

  • If a client or delivery person slips and falls during a visit to your home office and wants you to cover their medical bills or lost wages due to the injury.
  • If you make and sell bath & body products and a customer ends up getting a rash from one of your products and wants to hold you liable.
  • If you make and sell children’s products that cause a choking hazard and the customer wants to file a lawsuit against your company.
  • If you provide a photography service and a client claims that you damaged their property while on it taking photos.
  • If you or your equipment cause damage to a space you’re renting.
  • If you teach in person or online classes and someone claims your techniques weren’t taught properly and they got hurt or they damaged their equipment as a result.
  • If another company accuses you of copyright infringement or making slanderous comments.


Yikes…a little scary, I know. There are a lot of different angles people will use in our litigious society.


How much does insurance cost?

The cost will largely depend on what you need coverage for, the perceived risk, where you’re operating and whom you go through. Generally, the more popular the business concept, the lower the coverage because more businesses are paying for it. If you need coverage for a smaller, more specific industry, the higher your premiums may be. It can range from just over a hundred dollars, to hundreds of dollars to thousands of dollars a year; it’s best to call your insurance company to get some more specific numbers.


How do I get insurance?

If you decide you want to get coverage, it’s strongly recommended you shop around to find a policy and price that works for you. You can start with the insurance company you have your home or car insurance under to see if they offer the extended property and liability insurance you need and if so, how much. Keep in mind our word of caution above; they may cut you off if you’re currently operating your business, they’re not aware of it and they don’t offer home-based business coverage.

There are insurance companies that specialize in insuring specific types of industries such as soap making; often these specialized companies can offer the best coverage and rates.

Business Owner’s Policies (BOP) is another option that may be available to you. Basically it bundles the basic types of insurance a business owner might need into one package that can cost less than purchasing the policies separately.


What if I decide not to get insurance?

If you decide you want to forego additional insurance and someone files a claim against you, you will be responsible for covering all the fees associated with it; legal fees, settlement fees or judgement fees if you’re found guilty.

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Other points to consider

You’ll also want to:

  • First and foremost, talk to an expert. Insurance is confusing, I know, so it’s best to talk to an insurance agent or broker to discuss a range of hypothetical situations. There are so many different types of insurance and who, what, where, when and how they cover depend on the company and policy. This article may not be accurate based on when you read it, where you’re reading it from and about a million other circumstances so please take it upon yourself to call an insurance professioal if you want to dive deeper.
  • Make your own decisions. Insurance agents/brokers are like any other sales person; they make their money by selling you stuff. They may try to sell you coverage you don’t necessarily need so it’s up to you to make informed decisions. At the end of the day, you need to be comfortable.
  • Make sure you’re following safety requirements for your items as well. If you’re making something like baby or children’s products, there are a lot of different standards you need to meet to make sure they’re safe and compliant. And in order to prove that they are, they need to go through extensive testing, which is expensive. Insurance companies usually want to see that certificate proving that your products have been through testing and have passed.
  • Check on the locations your policy covers you under if you plan to travel to craft shows outside of your province or state.
  • Talk to your accountant to find out which types of insurance are deductible as a business expense.
  • Revisit your coverage each year; you may need more or less coverage depending on how your business grows.


There you have it! The fun facts of insurance :)


This article is for information purposes only and is not necessarily kept up to date. Speak to an insurance professional for the most up to date information for your profession and jurisdiction.


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Comments
Katherine
2016-10-17 06:07
Great article. Insurance is so important! At least in the U.S., there are companies that specialize in home-based business insurance. You may have to go through a few different agencies to find one, but be persistent!
Made Urban
2016-10-20 05:49
Thanks Katherine! It is really important and nice to have the peace of mind :)
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