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Insurance can be one of those topics that often get overlooked until it's too late, especially for the hobbyist or small home business. With your shop and tools come many considerations that go beyond the simple real costs of things. This information is targeted more toward the hobby or small home shop.

As with all advice and information it is your responsibility to check on and verify your specific situation and conditions with your insurance agent, i.e. "Don't take our word for it".

This is perhaps one of the most critical components of insurance because it often represents your greatest exposure. Make sure you have sufficient liability coverage and your insurance provider is aware of your need. Also make sure you comply with all the requirements of your policy. Remember, not even loosing everything you have to a fire and then finding out you were not covered can begin to compare to the prospect of of being sued because someone was injured in your shop while visiting. The good news is, liability insurance can be surprisingly affordable. Don't put it off, learn what your current liability protection is and make sure you are covered.

Workers Compensation:
This type of insurance will generally not apply to small shops with only one or two employees or the home hobby shop.. However, if you have even one part time employee you should make a phone call to find out what the regulations are in your state and if they apply to you. This type of insurance is designed to protect workers in the event of an on the job injury. It is generally billed as a percentage of your payroll.

This is the topic most people first think about when insurance comes to mind, covering the loss of equipment. Don't assume anything! Review your policy and ask your agent questions. Always ask before hand when possible as well, you may find a simple change such as having a detached rather than attached shop or using a steel building rather than wood frame can save you hundreds or thousands a year in premiums.

Here are a few good questions to start with:

  • Is my equipment covered as a blanket policy or do I need to provide an itemized list?
  • In the event of a loss, how will you value my equipment? Can we have an agreed value? If it is not an agreed value, get stern with this question, don't accept a vague "market value at time of loss" answer, ask them if it was lost today what kind of reimbursement could I expect? You need to know now, not when your $2300 table saw vanishes and they want to pay out $800.
  • Is my equipment covered strictly as " hobby equipment" or do I still have coverage when I start selling things I make? This area can be touchy for home owner's insurance. Most HO insurance will strictly exclude covering any equipment that is used in any commercial endeavor. But most commercial insurance will have a difficult time covering commercial equipment in a home and their minimum premiums could represent a significant burden for a home/hobby business. It is up to you to use your own judgment here and determine what you need. Of course you can report you are running strictly as a hobby but if you have inventory sitting around and jobs to deliver with trailer loads of raw material waiting outside, you've likely got a situation where you need to upgrade to full commercial insurance.
  • What kind of loss is my equipment protected against? Fire, theft, water damage, lightening and so forth. Any missing coverage should be considered carefully.

Depending on your business you may have several hundred widgets sitting around that you've invested in making. Are they covered in the event of a loss? This falls more into the realm of commercial insurance as I don't know of any HO insurance that would offer such coverage. If you do have a significant inventory of both finished and unfinished goods, check to make sure it is covered.

Most insurance companies, even commercial, exclude any coverage for software. However, you should make sure your insurance company will replace dongles, hence the complete license in case of events... if it's not clear (said and wrote down), it may create problem later. You should also keep backups of your software in a fireproof safe or safety deposit box along with printed copies of your keys. Remember, if everything burns down all your software and license keys could be gone and that could represent thousands of dollars.

Speaking from first hand experience, make sure you know exactly what your responsibilities are under your insurance policy. Are you required to have a monitored alarm system? Monitored fire alarm? Deadbolts and all your doors including garage/overhead doors? Fire extinguishers? Anti-theft device installed on any trailer tongue? Safety power lockouts on all equipment when you are out of the shop? The best way to understand what is required is to read your policy and ask questions. After a theft is the wrong time to learn you were required to have a monitored alarm system to be covered. The fact that your agent never told you this after 3 years of coverage will not persuade the insurance company to pay out.

For some reason, many agents will not volunteer any information about discounts that are available, so ask. You may be entitled to a discount because you have a monitored fire alarm, your removed gas appliances, you changed to a metal roof, you added house wide surge protection available from some power companies etc...

Don't forget about your Car or Truck:
If you use your car or truck in the line of business and especially if you add any type of lettering to it (permanent or temporary) you may no longer be covered under a normal auto policy. You need to ask specifically if it is OK to letter your vehicle and if transported materials would be covered in the event of loss.

Farm Policies:
It seems that State Farm Bureaus come well suited to cover home shops and businesses as well as provide very reasonably priced commercial vehicle insurance. Check your local state to see if you have a Farm Bureau office that may be able to help you.

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