Insurance for Your Craft Business

Does a Small Craft Business Need Insurance?

Do you need extra insurance to cover your work at home craft business? The quick answer is, "It depends".

The first two things to consider are what insurance you already have and what needs to be insured against.

Let's consider the second part first. If you have no assets to protect, you don't need insurance. If you are "judgment proof", in other words if you have nothing to lose, there is no need to buy insurance.

However there are certain things to consider in making that choice. First, legal fees, which are covered by most insurance policies, can sometimes exceed the amount of damages.

Second, judgments can remain on the books for years (30 is not unusual in most states) and are not necessarily dischargeable in bankruptcy. Finally, there is the moral issue of leaving someone you harmed without recourse. It's not a simple decision to make.

If you have a homeowners or renters policy you will have some coverage for your business already. The standard policy should provide property damage insurance for structures on your property that contain business materials. However, read your policy yourself or contact your agent to be certain.

Other business assets such as tools, supplies and inventory may not be covered. The easiest way of determining this is to ask your agent or read the exclusions clauses in the policy. Because of changes in the way these policies are written, you should actually be able to understand the language these days!

But even if the physical assets of your business are covered against loss or damage due to fire or theft, you most likely will have no coverage for physical injury your craft might cause to another, especially after a sale. This is what is known as "Product Liability" coverage and is vital if there is any way your craft could cause bodily harm to its user.

Not every craft, especially the decorative ones carry much risk. But clothing, blankets or quilts can be flammable. Candles could cause a burn or start a fire. Soap can cause an allergic reaction. Jams can give you food poisoning. Almost everyone knows that trial lawyers have run amok in the United States and lawsuits are limited only by their imaginations, which can be boundless.

There is a special home business insurance coverage endorsement to your homeowner's policy available in most states that provides most of the insurance coverage you would need for your home business. There are some limitations, such as for food manufacture, so discuss your needs with your agent and see if you qualify.

If you don't, you'll probably need what's known as a "Comprehensive General Liability Policy". Compare costs, it might be less that the homeowners endorsements.

As I mentioned before, the legal costs of defending a suit, are sometimes much in excess of the final settlement or judgment. These policies all provide you with legal defense coverage. That alone makes them worth serious consideration.

Finally, whether you have a home based business or not, you should have a personal umbrella policy. This would extend your liability coverage well beyond what you already have on your home, car or business. You should arrange your policies so that they all have a uniform liability limit, say $500,000/$1,000,000 and then have your umbrella policy kick in at that amount. Generally because the deductible is so high, the cost of the umbrella coverage is quite reasonable.

The main purpose of these policies is to protect you and your assets if something goes wrong. It's up to you to decide if they are worth the money they will cost you.

But there is one thing that I can almost guarantee. If you don't have the coverage, you will need it someday.

For more on this subject, please visit Product Liability and Crafts.