As craftspeople, we put a tremendous amount of effort into developing our manufacturing skills and business smarts.We’ve thought of it all: taxes, booth design and setup, merchant services accounts, product guarantees, wholesale distributors…the list goes on and on. Gosh we’re just brilliant, aren’t we?
But there’s one teensy weensy little detail craftspeople often forget: insurance.
A lot of craftspeople dismiss the need for insurance on the naïve and touching belief that their homeowner’s insurance will cover their craft business as well. Nothing could be further from the truth. And other craftspeople think they don’t need insurance because they’re not really a business—they think of themselves as a hobby. But that idea ends the moment you sell a product—once you sell, you’re in business.
And don’t forget,“insurance” is not a blanket term that covers everything. Different insurance policies cover different contingencies in your business.
I’ll state up front that I’m not an insurance expert. But I’ve been a craft business co-owner for the past 16 years, and over that span I’ve managed to pick up a tip or two.
Why not homeowner’s insurance?
Homeowner’s insurance covers your home. It is not meant to cover your business, even if your business is at home. If a customer comes into your house and he slips and falls on the sidewalk, it is very likely you will lose the court case (cha-ching!) because the insurance company can rightfully argue that you were not insured to run a business out of your home. So never, ever invite customers to your place of residence unless you are insured specifically for that purpose with craft business liability insurance coverage.
However, if you have customers in your home to pick up products, you might be able to get away with a studio coverage rider. This option is available (with an additional cost, of course) on some homeowner’s policies. I say you “might” be able to get away with this because, of course, you might not. Such is the specific nature of insurance policies.
Your safest bet is to talk to your insurance representative and ask a series of “what if”questions. What if a customer slips and falls on your sidewalk or stairs? What if her child pulls something down on top of his head? What if, what if, what if? Be sure to read the fine print on your policy to understand exactly what is and isn’t covered. That’s why it’s in print—for you to read. Remember the old line, “Ignorance of the law is no excuse?” Well, there’s no excuse for you to not know what’s covered by your policy if you’re not willing to put in a little effort to read it.
What about my vehicle?
Many years ago my husband was involved in an accident (not his fault) and totaled our truck. After we provided extensive documentation about the condition and worth of the truck, the insurance company promptly issued a check to purchase another vehicle.
We suddenly had the freedom to obtain a means of transportation that would be more suitable for our craft business. At the time, we were on the road more than we are now because we were still doing retail shows (as opposed to our current wholesale emphasis). So, naïvely, we called our insurance agent and asked if our ordinary collision insurance also applied if we were involved in an accident while on our way to a craft show.
To say there were verbal fireworks coming over the phone was an understatement. Suffice it to say the answer was a resounding “no.” Frankly, the agent was horrified at the thought that we might be (gasp!) driving our car to a craft show. If we wanted coverage for a “business vehicle,” we were informed in an icy voice, then we had to purchase a separate and more expensive policy.
I won’t suggest you should be sneaky in your dealings, but unless the vehicle is designated strictly for business purposes—say, a van with your company logo painted on the side and driven solely for business reasons—then most craftspeople are going to use their everyday cars or trucks to pack up and drive across town to a craft show. That’s just reality. However, don’t expect your auto insurance to cover any of the vehicle contents if you’re involved in an accident.
Business liability insurance versus business insurance
If you start looking into business insurance for your craft business, be careful about the kind of policy you examine. “Business insurance” applies mostly to brick-and-mortar retail stores. Most craftspeople don’t fall under this category.
Home craftspeople carry less of a risk than retail stores, so the policies should not be as expensive.You need to seek out insurance that covers business liability. This means if anyone is hurt in conjunction with some aspect of your craft business, then the insurance will cover the situation. Again, pepper your agent with a bunch of “what if” questions and read the fine print.
Remember, in-home businesses are a fairly new territory for insurance companies, and not all companies provide coverage. That’s why you can’t trust that your homeowner’s policy will cover you if someone files a claim for a business-related incident occurring in your home. If your current insurance agent doesn’t cover in-home businesses, seek coverage from a company that does.
What about craft shows?
For obvious reasons, craft shows producers want their vendors to be insured for liability. There are a few ways to do this. Sometimes craft shows will automatically offer a blanket policy for the vendors, the price of which is built into the booth fee (I find this to be the handiest option). Sometimes the show producers can provide an optional rider, in which you’ll pay extra on the booth fee and receive liability insurance (unless you can provide proof that you carry your own insurance). If you carry your own insurance, you’ll probably be required to list the particular craft show as an “additional insured” for the duration of that show.
Some shows will provide the name of an insurance company that specializes in craft business insurance (I suggest you take their advice); other craftspeople need to do the independent research to find a reputable insurance company that offers this specialized coverage. Then you’ll have to pony up the paperwork to the craft show producers, proving that you have insurance and naming the craft show as an additional insured.
Craftspeople’s insurance is a specialty field and not all insurers provide it. (They’re more used to insuring brick-and-mortar storefronts). Make sure you deal with an insurance company that specializes in insuring craft businesses.
All of this differs from insurance that covers your inventory and tools.
Inventory and tool insurance
Do not assume the insurance policy that covers liability at a craft show will also cover any booth damage or loss of inventory. Most policies will only cover liability should someone get hurt in your booth. If a shelving unit falls on a customer and sends her to the hospital with a concussion, the insurance may cover the liability for that incident but not for any damage to your shelving unit or the products that were on it.
So yes, if you want insurance that will cover tools, equipment and inventory damage or loss at a craft fair, you need a specific policy that addresses that.
The same applies for your in-home business. If you have a fire or flood, do not assume your homeowner’s insurance will cover the tools and inventory associated with your business. Once again, there are specific policies or riders that will cover such damage.
What about liability associated with my product?
A further complicating factor is a liability claim arising from a faulty product—perhaps a child chokes on a badly sewn plastic eye on a doll or stuffed animal that you made. If the parent decides to sue you for injury or death, you’d better have insurance to cover that.
There is insurance available with the ponderous title of “commercial package policy with general liability endorsed to cover products and completed operations” that will cover these types of situations. Once again, you need to ask a series of “what if” questions of your insurance agent. If your product is incapable of doing damage to customers (is there such a product?), then you may not need this kind of coverage. Otherwise, consider it.
Aaarrrggh! Too complicated!
Yes, insurance is a complicated issue. In this litigious society, it has to be. That’s the bad news. The myriad of complicating factors means insurance is a subject best left to the experts—but with your intelligent involvement. Like any business, some insurance agents may try to sell you more insurance than you need.Your job is to ask endless questions (including the “what if” series) and get satisfactory answers before signing on to a policy.A good agent will tailor your policies for your particular circumstances and make sure all contingencies are covered while dropping coverage that doesn’t apply to you.
Also, remember that different companies cover different territories. If you live in California but decide to do a craft show in Maine, check to make sure your coverage applies in both areas.
The good news is, insurance for a craft business is not terribly expensive. As an example, we purchase insurance for an enormous once-a-year craft show that lasts seven weekends—it is our sole retail excursion of the year. Insurance for the entire duration of the show costs about $120. We have other insurance that covers our tools and inventory in the event of fire or other disasters, and the cost is not prohibitive.
Of necessity, this article is generic and can only touch on the basics of insurance for craftspeople. Every craftsperson has unique circumstances that may require coverage.That’s why I highly suggest consulting an insurance agent specializing in craft businesses and ask him endless questions.
On the bright side, sufficient cover for your craft business will bring you great peace of mind. In these challenging economic times, peace of mind is second only to money in the bank from selling your craft.
About the author: Patrice Lewis is co-founder of Don Lewis Designs. She and her husband have been in business for 16 years. The Lewises live on 40 acres in northern Idaho with their two homeschooled children, assorted livestock and a shop which overflows into the house with depressing regularity. Her e-book, The Home Craft Business: How to Make it Survive and Thrive, is now available. This article originally appeared in the May 2010 issue of The Crafts Report.