One of my best friends in the whole wide world sells candles. She sells nice candles… and a lot of them. She sells those candles at those parties that we women have. You know the ones- where we invite each other over to drink wine, eat snacks, gossip, and shop. She also sells them at craft shows and vendor markets all around the state. She is this incredible ball of energy who always has the perfect scent on hand.
How many of us have direct-selling or home-businesses like that? I would bet you that if you don’t have a business yourself- you know someone who does. Someone who sells candles, kitchenware, makeup, clothing, jewelry, leggings, scrapbook stuff, weight loss/fitness products, you name it. In 2015, the direct selling industry brought in $36 billion.
As a business owners, whether you are selling your products as a side gig or as your sole means of cash- you need to be concerned about insurance; especially if you keep any inventory in your home. Some sales people have kits with samples and possibly a very small amount of inventory on hand. When customers want something- the customer places their order with the direct seller and then it is shipped to the customers home without stopping at the direct seller house along the way.
Other sales people have inventory on hand. Inventory that sits in their home offices, living rooms, basements, or even garages- waiting for customers to purchase. Waiting to be taken to the booth at the next craft or vendor show. I’ve known people that keep thousands of dollars worth of inventory sitting in their home. Not to mention the laptop they use for business, the card tables they bought specifically for showing their products, and other various business items.
So what happens if your house has a loss. For instance, you have a fire in your kitchen, which spreads to your dining room- where you keep $2,000 worth of your inventory and your supplies. That’s covered as your personal property on your homeowners (for the purpose of this blog, I will just use the term homeowners- but I am meaning renters/condo policies as well) insurance, right?
Don’t kill the messenger… but it probably isn’t. Not unless you added additional coverage on your insurance policy.
Most people who sell these types of products skip this step. In my opinion- they skip this step because they are afraid it will cost too much or because if they admit they have a business on their insurance, they might have some kind of tax issues they didn’t intend on dealing with when all they wanted was some extra vacation money and a discount on some products.
So what does the typical homeowner policy include?
Without adding any additional coverage, the typical homeowners policy will cover $1,000 worth of property that you have in your house that you use for a business.
For example- if you have $2,500 worth of inventory that you typically keep on hand and you have a fire that destroys two rooms of your house, including the room with your inventory. Your policy will pay for your household items, assuming you have appropriate limits for your personal property, but it will only cover $1,000 of your business items. You would be out $1,500.
And before you ask, no, you’re not going to be able to fool a claims adjuster and tell them that you just love $2,500 worth of candles and you don’t sell them. They investigate things like that- and trying to get away with that is insurance fraud. Not something you want to be involved in.
So what do you do?
I am pretty darn sure that my friend has more than $1,000 worth of business property in her house at any one given time. I’m also pretty sure that if there was a loss (theft, fire, tornado, water, etc)- she would not want to have to lose all of that money. So for just $19, we were able to add additional coverage for extended business property.
That’s right… it cost her $19… A year.
It extended her limit on business property inside her home to $5,000. I call that a pretty good deal. I was impressed with how affordable it was myself.
Every insurance carrier is different and may have slightly different policy caps, etc- but $5,000 is as high as my company goes for business property within a personal homeowners insurance policy. So in this case, if my friend needed or wanted coverage for more than $5,000; the next step is to look at Business Owners Policy (or BOP).
Let’s talk about your Auto…
Most of us have a personal auto insurance policy. We drive our cars/trucks/minivans to shuttle the kids back and forth, go to work, get groceries, etc. Our auto insurance covers us for that kind of “personal” use. However, once you start to use it for “business” it becomes a bit more tricky.
For most personal auto policies, the minute you start to use it for business, (ie- start a shift as a pizza delivery person, start a shift as an Uber driver, etc), your car is now a commercial auto- it is being used for business purposes. From the first minute of that work shift to the last minute of that work shift- neither you, nor your auto, are covered on your personal policy. If you are delivering pizzas and you get into an accident, you do not have insurance (unless your employer is providing you insurance).
Note: If you are a Uber or Lyft driver, check with your insurance company about Ride-for-Hire coverage. My company offers very affordable add on Ride-for-Hire coverage that will take care of this problem.
How does this affect your direct sales business? Are you covered?
If you are taking samples to a party where people will be placing orders or picking up a shipment from the UPS store and taking it to your house- your personal auto will still cover you. However, if you are taking items in your car to a show- where they will be sold- your car has now turned into a commercial vehicle. If you have a claim during this trip, it may be denied by your insurance carrier.
This information may prompt you to relook at how you sell your products. Or- it may prompt you to take a look at switching from a personal auto policy to a commercial auto policy.
Knowledge is power- even if the information you are receiving is not the news you wanted to hear. The good news is- if you know the risks you have facing you- then you can decide how to mitigate those risks. You can decide how to make sure that you are not putting you or your family in financial distress by not having appropriate coverage.
As always, if you would like to discuss your insurance coverage or would like a quote, please don’t hesitate to contact our office.