business insurance

[obsessedquilter]

I'm just getting my business started. My Millie and Compuquilter is in my basement studio and I will be having some of my customers come to my home as well as meeting them at quilt shops and guilds. I need to get business insurance. I have received a couple of quotes, but of course they all come with extra options over and above the basics. Can anyone give me guidance on what insurance is necessary and what is not worth the money? This insurance is going to cost anywhere from $340 - $700 a year depending on my options. What do I really need? I find the insurance people barely understand what my business is about, and of course they want to sell insurance. Can anyone help me with some advice? Janet in Detroit

[ffq-lar]

No one has jumped on this and it is a mystery to most of us--it has been discussed many times with no clear answer.

You will need insurance for your machine and accessories, customer\'s quilts, and liability for customers in your residence. That said, some longarmers keep a very limited number of tops on the premises. They call for the customer to drop off the top as their turn comes around. Some only do pick-up/drop-off at the LQS. Your machine needs replacement coverage, especially if it not paid off yet.

Hey, I know there were some insurance experts registered on the chat! What is the consensus on insurance?

[RitaR]

thank you for starting this thread.. Interesting and important info.

RitaR

[Charlene]

Hi,

I was lucky when I was arranging my business insurance because the agent just happened to be a quilter and thought of things I didn\'t. It was pure luck that I got her as an agent.

I looked at my policy and here are some of the highlights:

business equipment and replacement, equipment breakdown, property and liability coverage (including medical claims from clients), money, employee fraud.

Note that customers quilts as quilts are not insured unless they have an appraisal with them. Their fabric and thread would be insured but not the quilt itself.

I also have a shop in my home and don\'t keep a large supply of customers quilts on my premises.

Hope this helps,

Char

[Stagecl]

You can get a rider for your homeowners policy that will cover your liabilities, an umbrella policy I believe it is called. My husband works for an insurance company and handles all my insurance needs, so he has it covered. That is why I don\'t know exactly what it is called.

My studio is also in my house.

Cheryl

[obsessedquilter]

I was under the impression that an umbrella policy that is a rider on your home owner\'s insurance only covers problems that have to do with normal "home" activities. If there is an incident that occurs while I am conducting "business" out of my home, then the umbrella policy won\'t cover it. That\'s why everyone has been telling me that I need "business" insurance. Can anyone agree or elaborate on this?

[Sheri Butler]

Please speak to your "agent" about what covers what. My husband is an insurance adjuster, and there are alot of different coverages out there, all in a different "ball park" of pricing and coverages. Ask your agent what specifically it will cover, or ... better yet... Tell him what it is you want to cover, so he can provide you with the correct coverage. This is a W I D E top of conversation, and in order to get what it is you want, YOU have to be specific to your agent so you can get the coverage you need.

[Hotquilts]

I apologize for the delay in responding to this posting about insurance. It must have slipped under my radar. Anyway, below is something I have posted on a couple other lists for longarmers and some here might find it helpful as well. Seems this time of year people tend to get their financial affairs in order and questions of insurance start to pop up again.

**********************************

This is copyrighted material and I am happy to share it with all of you. I simply ask that it not be used elsewhere or pirated to some website.

Here goes:

• Why should I purchase business insurance?

This is a question often asked by quilters who feel they have no exposure to loss since they might not have many customer tops on the premises at any one time and feel the nominal income which their business generates makes it an unnecessary expense. This narrow view overlooks that although the loss of customers’ property is certainly a concern, the bigger concern for the quilter-for-hire is their liability exposure.

The loss of property, while it can certainly be difficult financially, rarely holds the potential to create complete and total financial devastation that a liability loss can present. It will be that customer who slips and falls, breaks a hip, can no longer work (not all quilters are retired), can no longer support a disabled dependent at home, has inadequate health insurance, etc., who will ultimately cost you EVERYTHING if you are sued for damages.

“But I pick up/deliver all my tops to customers at my local quilt shop? I don’t have public traffic on my premises.” The potential for a liability claim through the actions of your business operations still exists.

In addition, how about the costs to defend frivolous suits? Even if you won, you will have incurred significant legal costs in defending yourself. How about copyright infringement claims? What happens if your financial records are destroyed and you need funds to recover your valuable papers and accounts receivables? The list goes on and on…

It is true that your exposure to loss can be reduced but they cannot be completely eliminated because you cannot waive your legal liability. It is also important to remember that your insurance company has a duty to defend you in the event of a claim and that those defense costs are in addition to the limits. If they weren’t, you’d find your limits depleted by the attorneys in very short order.

• What type of insurance should I purchase?

This is a tough question because it can be depend on several factors. I usually recommend a separate small businessowner policy, as known as a BOP. BOPs are designed to meet the needs of the small business. They generally provide some of the most comprehensive coverages out there. Many extra coverages such as Valuable Papers, Accounts Receivables, Electronic Data coverages are typically included in the coverage form. Also, those coverage limits can usually be increased for fee. The types of coverages and the “included” limit amounts vary from company to company. Unfortunately, not all companies have a BOP policy.

Another option is the business insurance endorsement, also sometimes referred to as a rider endorsement. (Name of the endorsement may vary depending on the company.) This is a form that extends the coverage of your homeowner policy to cover your home-based business. It is usually less expensive than a separate standalone policy. However, it tends to be more limiting as well.

If you are operating as anything other than a sole proprietorship, this endorsement will not be available to you. In addition, you generally do not get the myriad of extra coverages that you get with the BOP policy. Still, it may fit the bill quite nicely for the quilter that IS a sole proprietor and just wants the little bit of extra coverage at a reasonable price.

Another type of policy that is not quite as popular for the quilter is the standard commercial package policy (CPP in my day, could be called something else now). This is an insurance policy that may be considered somewhat ala carte. Very few if any “extra” coverages are included, but it can be tailored very nicely to the customer’s insurance needs. When comparing coverage, you may find that the CPP is slightly more expensive than the BOP for fewer coverages. However, the CPP may allow things that the BOP might not (depending on the company), such as additional insured endorsements.

It bears repeating that if you are anything other than a sole proprietor (i.e. corporation, LLC or partnership), your only options for business coverage will likely be a BOP or CPP.

• Are there advantages to having a separate policy as opposed to a business endorsement?

Yes, aside from providing more coverage options as addressed earlier, here are some more advantages to having a separate policy for your business:

You will have separate limits for business premises and operations liability, product liability, personal injury and premises medical rather than sharing them with your homeowner risk.

It makes business insurance expenses more easily identified and tracked for tax purposes.

A business policy can remain in force (uninterrupted) should you decide to move to another location, add a location, move your homeowner coverage to another insurance company, or change the name or legal structure of your business.

Your homeowner loss experience, payment record, or possible cancellation will not affect your business insurance.

It may be necessary to add other entities as an additional insured, which is more easily accomplished with a separate business policy.

• Who do I go to in order to find insurance for my needs?

Hmmm…good question! For the average longarm quilter, you will go to either a direct writer or an independent insurance agent. A direct writer represents one company. Examples of companies that are direct writers are Allstate, State Farm, Farmers Insurance, etc. Many of these companies are a good fit for some insureds. However, depending on the company and perhaps even the agent, they can sometimes be less flexible in accommodating insureds that do not exactly fit their rules and regulations. Still, they are worth investigating.

Independent insurance agents represent several companies. This allows for competitive bids for your business. Within the independent agent category there are also those that specialize in personal lines or business or both. It’s important to note that all agents dealing with business accounts are not the same. Some agencies specialize in small business accounts, some target the large business or corporate world and many handle both types of accounts. You might wish to contact other small businesses in your area about what agent they would or would not recommend.

It is equally important to find an agent that is willing to find out exactly what it is a longarm quilting business entails and who is willing to spend the necessary time to work with an underwriter if need be. Unfortunately, the profit margin on these small accounts may not be enough to merit a large investment of time on their part. Therefore if you come to them prepared and provide them with the necessary tools to make their job easier and faster, you will have better luck securing insurance at an affordable price.

• How do I prepare to talk to my agent about my business insurance needs?

Understand what type of business you have and know how to explain this to your agent. The government may view you as a manufacturer, but from an insurance point of view, you really are far removed from a true manufacturer. The insurance rates used for a manufacturer contemplate risks that you simply do not have. This is particularly important if you are trying to get a BOP. BOP rating rules tend to be very specific and very rigid, i.e. no exceptions will be made by most companies regarding their BOP policy eligibility requirements.

Therefore, be sure to stress that the risks faced by a longarm quilter are similar in nature to that of a tailor or seamstress. There is even less exposure to these risks given that the majority of us see our customers by appointment only and there are never any personal fittings for a quilt. Our machines are very similar to the standard sewing machine and our tools and supplies are even more similar.

Keep in mind that the underwriter may be using the internet to research machine quilting. It is important they understand that the home-based machine quilter is not running one of these:

http://dfhongyue.en.alibaba.com/group/50339099/Quilting_Machines.html

• How do I determine what coverage limits I need?

Your major concerns will be your property limits (your property and property of others which would be your customer quilts) and your liability limits. A simple inventory will assist you with the property limits. My DH (currently a commercial underwriter and an occasional insurance educator) and I developed an interactive spreadsheet to assist in determining your property values at risk. (This form can be found on the MQP (machine_quilting_professional) Yahoo! list in either an interactive Excel spreadsheet or a PDF print file. If you are not a member of that list, contact me privately and I’ll send it to you. Please specify what format you need, i.e. Excel spreadsheet or PDF.)

The inventory total may truly surprise you but once you have that figure then you must decide how much of the property are you wishing to insure. To insure ALL of it might prove to be more costly than you’d like. Only you can determine how much you wish to self-insure.

With regard to liability limits, both DH (a commercial underwriter and occasional insurance educator) and I feel very strongly that you should never go with less than $500,000 and a $1,000,000 limit is better. Some companies refuse to write business insurance for limits less than $300,000. It takes surprisingly little to exhaust low limits and finding this out during a claim process can be quite disturbing. Furthermore, it usually does not cost a great deal to increase those liability limits. Larger liability limits are well worth the peace of mind.

However, if you wish to increase your property limits on a BOP, you may see a more significant increase in premium due to the fact that these types of policies are composite rated. That composite premium is heavily weighed against your property limits. This brings to mind another question…

• How do I value my customer’s quilt top?

You don’t, the adjuster ultimately determines its value.

The value of a customer’s top generally will be only the cost of materials put into the top UNLESS the top has a written appraisal prior to the loss or a market value can be determined on the basis of an artist’s track record, etc. Unfortunately, sentimental value and the years it took to appliqué granny’s quilt top will likely not be considered. You might be able to negotiate a value with the claims adjuster but it is prudent to not expect too much if there is no tangible way for the adjuster to verify the true monetary value of the top.

For this reason many quilters restrict the number of customer quilt tops stored on the premises due to the fact that the adjusted value will likely fall considerably short of the owner’s expectation in the event of a loss. For determining the “property of others” limit you might need to do some estimating. However, on many policies that limit is a percentage of your property limits. Ask your agent and/or check the policy.

• How can I reduce my insurance costs?

One way to reduce cost is to “shop” your policy. See if you can leverage your business with the possibility of insuring all your business (home, car, boat, life, etc.) through one agent or one company. Consider self-insuring some of your property. Consider using higher deductibles.

Most insurance policies can be put on a monthly or quarterly payment plan. Ask your agent about any available payment plans. Insurance premiums are a cost of doing business. A payment plan may make managing these business costs a bit easier.

• Is one insurance company preferred over another?

In looking for a good insurance company you will wish to consider one that has an A.M. Best rating of A or better. A.M. Best (www.AMBest.com) is a key financial rating company that is used by the industry to determine the financial strength of an insurance company. In addition, do not overlook the smaller regional insurance companies. They are often financially strong and very competitive in areas of business some of the larger companies may not be targeting.

• Will my farm policy cover my quilting business?

You would have to read your policy carefully. Most farm policies have a specific exclusion stating that non-farm business activities are excluded from coverage. However, if your farm policy has a comprehensive general liability coverage form, you might be covered if no exclusion of other activities has been added to the policy.

• What is a Comprehensive General Liability form?

Basically it is one of the broadest liability forms available. It covers everything except what is specifically excluded. This is why you will find several pages of exclusions in this form.

A not-so-farfetched example of how a CGL will cover unintended coverages is the electrician that the insurance company thinks is wiring residential homes. Then they receive a request for a certificate of insurance on the electrician from a major airport. If the underwriter doesn’t catch this “request” in time to ask the appropriate questions, the company could conceivably be insuring the electrician that has now expanded his operations to wiring runway lighting! Probably not something the current insurance premium contemplated and perhaps now a risk the insurance company does not wish to insure.

Therefore, if you have a CGL (and most liability policies are this type of form), small changes in your business (like venturing into teaching, perhaps dealing a product) will be automatically covered unless specifically excluded. Your agent will help determine whether or not that activity is “incidental” to your operations and needs to be addressed in a different manner by the company.

• My agent says my Homeowners policy covers my business property.

This is only partly true. There actually IS some business property coverage in most standard homeowner policies. HOWEVER, it is a very small amount (usually not more than $2,500) and is really intended to cover small business equipment such as an answering machine, fax/copier, telephone system, etc. Certainly it is not enough to cover most longarm quilting machines!

Besides the property issue, remember that homeowner policies do NOT cover general liability for business activities. Read the exclusions. Your customer’s slip and fall will not be covered by the HO policy even though it happened in your house!

• I have converted the garage attached to my home to accommodate my studio. Where should it be covered – under my homeowner policy or my business policy?

A structure physically attached to your home is considered part of the home and would be covered under your homeowner policy. However, the contents of your converted garage and your business operations must be covered under a business policy or, at the very least, a business endorsement to your homeowner policy.

• I have an umbrella policy. Won’t that cover anything that isn’t covered by my homeowners policy?

Since most umbrella policies are called “following-form”, it is highly unlikely that it would. Following-form basically means it follows the conditions and exclusions of the underlying policy. This would mean that if business activities or a named insured are excluded from the homeowner policy then it is also excluded under the umbrella policy.

• What easy safeguards can I take to be sure my claims adjusting process goes smoother in the event of a loss.

Aside from adhering to the rules of the policy regarding what to do after a loss has occurred, an inexpensive and valuable tool is your digital camera. Take pictures of your studio and of the quilt tops on premises, then email them to yourself at a web-based email address. This provides an accurate accounting of what you had at the time of loss and is most especially valuable if a total loss occurs.

• Why should I purchase insurance when the insurance company is in the business of refusing to pay claims even if there is a loss?

The reason I even address this question is because it frequently arises on various elists and forums. Someone inevitably comes out and describes the insurance industry as scam of sorts. To those skeptics, I say it is not a scam but it IS a business and they are NOT in the business of refusing to pay claims. If they did this, they would be out of business!

The insurance industry is concerned with making a profit, as are all businesses. The insurance policy is a CONTRACT. Unfortunately, many people do not read the contract or, if they do, it can be somewhat confusing for many…even to some insurance people! And, as in most businesses, there are good companies and bad companies, good employees and bad employees and in insurance, good adjusters and bad adjusters.

In the event of a loss, the claims adjuster, not the agent, will be the one who will determine if a claim is covered or not. There are methods to address claim disputes as described in your policy. If all else fails, an insurance company will sometimes be taken to court. Since the courts understand that the insurance companies have the upper hand in terms of resources and expertise, they generally use the “reasonable” man theory, i.e. what would a reasonable man expect in terms of interpreting the insurance contract. This is why frequently cases are ruled in favor of the plaintiff and not the insurance company.

An example of the courts ruling in favor of the insured and in conflict with the actual insurance contract is the recent ruling in Mississippi that insurance companies need to cover Katrina losses that were specifically excluded in the policy contract. A blow to the insurance industry which will ultimately be a blow to the region when insurance companies refuse to cover those states anymore, thus lowering the supply of insurance and driving up insurance costs. Remember, insurance is not a social device; it is a BUSINESS.

(I realize as I write this that this event could be a very HOT topic issue. Please do not respond to me regarding Katrina and insurance companies. I only mention it as an example of where the specific contract is being overruled by the courts in favor of the insured. I do not wish commentary on the moral factors involved, etc. I see both sides to the court battle and my feelings, or yours, about it, have no bearing on the fact that an insurance policy is and always has been a contract. So please read it.)

Also, many state insurance commissioner offices hold a great deal of power. They can literally shut down a company in that particular state if a company is operating outside the law. Keep in mind that the insurance industry is one of the heaviest regulated industry in this country. You, as the consumer, actually do have some power to keep insurance companies honest! ;-)

• Are there any group policies available to me?

I have heard of one group policy but am not sure as to how much protection is actually provided by it. I believe the general liability policy was written on an aggregate basis. That is, one aggregate limit of $1,000,000 for the entire group, not for each named insured. This would be terribly inadequate if more than a couple insureds were unfortunate enough to have liability claims in the same year and a disaster if many were named individually in the same loss event! Therefore, if you hear of a group liability policy for quilters, be sure to ask questions about how the limits are applied as well as coverage, such as whether it is a true comprehensive general liability form.

There is also a property group policy that I’ve been told covers quilters’ property, property of others and property in transit. I believe you get a certificate and perhaps a declarations page of the actual policy. This keeps the costs down on a policy that covers perhaps hundreds of insureds. However, without an actual policy to read, it is impossible to say how adequate that coverage is. My advice would be to request a copy of the policy with your proof of insurance if you go that route.

I do not recall whether this particular property policy is “special form” policy. Special form is what used to be called “all-risk”. Similar to the CGL, it basically covers all perils to property except those specifically excluded in the policy. Whenever possible, you wish to get special form coverage along with replacement cost coverage.

• Finally a very brief mention of that hot-topic - “working under the table”.

Please keep in mind that the homeowner policy clearly defines what they consider being “in business”.

A standard Homeowners Special Form reads:

“Business” means: A trade, profession or occupation engaged in on a full-time, part-time or occasional basis…

It goes on to say that if you receive more than $2,000 compensation for your services in a 12 month period prior to the policy period start date, you are in business. Being licensed or filed in the state does not determine whether they consider you a “business”.

Think about that. If you are quilting on occasion and making as little as $167 per month of income, you are now defined as being in “business” by your homeowner’s policy and HO policies do not cover any liability from business operations.

Similarly, on a separate business liability policy, if you answered the insurance application in a misleading manner (such as checked the box saying you were licensed when you are not), then your business coverage may be in jeopardy due to “misrepresentation”.

Moral of the story: play it safe and play by the rules. ;-)

This information is provided by:

Christine M. Olson

Chartered Property Casualty Underwriter

Associate in Risk Management

©2007

P.S. DH is also a CPCU, ARM.

[tsurich]

Wow! Christine!

Thank you for such a complete reply and thank you for sharing your specific knowledge. I think someone at MQS should contact you to teach a seminar on insurance.

[ramona-quilter]

Hey, I would sign up for that class.

Insurance is a (well, until I read Christine\'s post) mystery. I have GEICO which I love but they do not have any provision/rider for small business in home. I think what I need is a BOP so I am going to follow Christine\'s advice and look for an independent agent. The agents in our town are all "direct writers" as described in Christine\'s post.

I prefer to use the LQS as a pick-up/drop-off for quilts but that does not always work out. I have had two separate occasions where a 70+ year old customer missed a step on my front porch and fell down. I was so afraid they had hurt themselves. They were embarassed and blew it off. Afterwards I worried that if it had been anybody else, it could have been trouble. Most quilters are not agile healthy 22 year olds. A fall could be so debilitating for an elderly person.

Christine, thank you so much for the info. And Janet in Detroit, thank you for bringing up this topic.

[obsessedquilter]

Thanks for the infomation and the advice. My insurance agent pretty much said all the things that you talked about so I\'m feeling good about my business insurance choices and my trust in the knowledge of my agent. Thank you Christine for taking the time to answer my questions so completely. I am sure many LA Quilter\'s are going to be referring to your information over and over again.

Janet in Detroit

[QuiltsbyNini]

Christine,

I missed this question when it first came up, and read it tonight for the first time. My first thought was, where is Christine????

You do an excellent job of explaining all those things that non insurance people think of as mysteries, and those of us with insurance background think... well, basically we think they are very basic!

My standard advice is to always, always read your policy. Don\'t take any one\'s word (like your agent\'s) that it is covered. See it for yourself in the policy. Since each company writes a slightly different policy, and your local independent agent may write for as many as 100 different companies (when you add in all the non standard carriers...) no agent can guarantee a coverage without reading the policy.

Of course, some of those policies can put a lawyer to sleep.....

Jeanne

Monroe, GA

[GramieSnooks]

I just called my State Farm agent where I have my other stuff and told them what I needed and they put it together for me, then sent me a list of what is covered.