Do You Need Insurance?

We receive some interesting questions from readers from time to time.  Here is one that I thought I would share:

One question I have is about business/product insurance. We only sell online right now and haven’t obtained anything yet. Is that something that is required/recommended before getting into a store?

I know in general it is prudent anyway, but I didn’t know if that was something gift shops normally ask about?

Here are the suggestions we sent the email writer.

DISCLAIMER NOTE:  We are not authorities on this subject.  I suggest you contact your insurance agent for a more detailed answer.

Insurance is only a good investment if you need it. And of course, if you do Do You Need Insurance?need it, you wish you had it.

But here are some facts:

Unless you are dealing with toys, or goods with dangerous (moving) parts, or toxic chemicals or ingredients, the odds are minuscule there will be a problem. But it is category dependent.

After 15 years in the business, and calling on thousands of buyers and selling to several hundred, offering multiple lines (as a rep) NOT ONE ever asked for proof of insurance.

You are more likely to get asked for proof of insurance while exhibiting at fairs or shows, etc.

We’ve been in the gourmet food business as manufacturers, wholesalers, and retailers for 15 years. We had general and product liability insurance for a couple years, when we were at our peak in the mid 2000s. Never a claim or threat, and $100 a month was going out the door. So we stopped and have saved probably $10 -$15K in premiums during that period.

We live in a litigious world, so the risk is always there.

Also, look at your current personal assets. If you have little that can’t be sheltered with a bankruptcy or standard exemptions, what are you protecting, actually? If you have a LOT of personal assets the issue is a bit different.

Also, incorporating or forming an LLC can provide some level of protection, but for an individual, the opponents attorney will seek to “pierce the corporate veil”, claiming you are operating as a sole proprietor and the business entity is a sham. Success rate for doing that is very high with an LLC (something the lawyer charging you to form one does not know, or is unlikely to tell you). Running a corp is a lot of paperwork and also requires dotting a lot of i’s to stay protected. I won’t even talk about general partnerships, since only a fool would form one of those.

If you get insurance, you will get a policy with general business insurance coverage, AND product liability. Premiums will depend on the general industry you are in, the categories of products you sell/produce, sales volume, and whether you manufacture, and whether you wholesale or just sell to consumers.

It does not hurt to start developing a relationship with an independent insurance broker (just one, as they all work with mostly the same companies, and you just piss them off if you work with multiple brokers all getting quotes from the same companies. We’ve had good luck with Farmers Insurance… and while that is an insurance company (with good ties to the gourmet food industry), their agents will shop around and can write policies from several companies, just like an independent. Of course, Farmers is mostly western US, so that may not help, depending on where you are located.




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