Homebased Kitchens...what Type Of Insurance Do I Need?

Business By tmcakes Updated 6 May 2009 , 11:47pm by indydebi

tmcakes Posted 29 Apr 2009 , 12:16am
post #1 of 19

Hello all, Please advise me...because i really have no clue!!!!

I am so excited last week I received my license to do business in La.(ok its a start so i am super excited) Home kitchens are not allowed La, So now I am getting ready to start preparing my small 11 x 12 guest room (not big enough to be called a house) which is detached from my main house into my baking kitchen.

I have contacted HD regarding the requirements and getting ready to submit my plans for approval. Well I sitting here thinking about everything I have to do and just thought what in the world will happen with my homeowners insurance? Will I need to add a rider policy for a home business? If so what does that involve and will it cost me a ton of money to do so? I remember them asking if I had a home business when I took out the policy so I take that as I need to let them know when I start this cake business! I want to do everything right and don't want to cut corners and hide from people like the HD or my homeowner insurance which by the way is USAA. Any suggestion or info will be helpful.

18 replies
jenmat Posted 29 Apr 2009 , 12:30am
post #2 of 19

I remember when I opened my kitchen downstairs, and the insurance was separate from the homeowners, including liability. It was like an extra $585/yr minimum, but will protect you in case there is a fire caused by the kitchen- if it burns down your house and they can prove it was the bakery, then home owner's insurance wouldn't cover it. Plus, then you have liability in case something happens. Good luck! What a crazy but fun experience it is! It will be soo nice for you to have a place just for your cakes!

trumpetmidget Posted 29 Apr 2009 , 2:37am
post #3 of 19

I currently have my license, though I am not selling right now (we got a kitten...too cute). Anyway, for my insurance, because I am a sole proprietor and not an LLC, I just added the business to my homeowners insurance and it only added $30 a year. If I become an LLC, I would have to get seperate insurance. In all honesty, call your insurance company and ask them what you need to do. That's what they are there for, to help you. My insurance company was really nice and answered all my questions and told me all my options. Good luck! HTH

cupcakebliss Posted 29 Apr 2009 , 2:09pm
post #4 of 19
Quote:
Originally Posted by trumpetmidget

I currently have my license, though I am not selling right now (we got a kitten...too cute). Anyway, for my insurance, because I am a sole proprietor and not an LLC, I just added the business to my homeowners insurance and it only added $30 a year. If I become an LLC, I would have to get seperate insurance. In all honesty, call your insurance company and ask them what you need to do. That's what they are there for, to help you. My insurance company was really nice and answered all my questions and told me all my options. Good luck! HTH




I didn't know you could add to your homeowner's policy that would cover business liability. I live in PA and I am looking into insurance right now. Do you mind sharing the name of your insurance company? How much business liablility do you have? The only fear I have is if I don't form an LLC then I guess I am afraid that I could potentially lose my personal assests if something were to go wrong in my business.

TTSweet Posted 29 Apr 2009 , 3:03pm
post #5 of 19

I'm a business newbie (wish I had a business guru so I could just make the cakes). Why not go with an LLC? I've heard there is cost involved. Is that a reason for going with sole proprietorship? Sorry, am curious about insurance needs as well so I'm not trying to change the thread direction.

indydebi Posted 29 Apr 2009 , 4:57pm
post #6 of 19

Any questions regarding insurance should be directed to your insurance agent. He/she understands the laws of your state, knows what coverage you have and knows what it covers and what it excludes. If you're working with an independent agent (who who represents multiple companies), he/she can also shop your business and get you the best rate/coverage from a number of options.

That why you pay him/her a commission ... because they are the experts.

tmcakes Posted 30 Apr 2009 , 5:28am
post #7 of 19

CUPCAKEBLISS & TTSWEET I'm sorry but I don't kow how to do that cool quote thing yet but, I was told today by my homeowners insurance that "they" USAA which is who my insurance is with, no longer offer the homebased business endorsement on homeowners policies! I'm gussing thoese who did were grandfathered in or were switched to a indiviual business policies that are now offered. Which what I told covers a lot more!

I will get my quote tomorrow and update on the cost per year which was said to be about ballpark $500.00/yr the min limits USAA writes is $1,000,000 (there is no way I can see me needing that much but,ya never know what people will do today for a $) which brings me to the #1 reason I was afraid of going at this in the first place! (im slowly overcoming that fear the deeper I get into getting this thing off the ground)

I was not cool with starting a business and having my personal assests "up for grabs" in the event someone decided to trip and fall at my home or try chewing thru a dowel rod that was cleary told was stuck inside the cake, so last week I filed my articals with the state of La (cost only $75.00) as a LLC. Limited Libiliaty company which depending on the state you live in limits libility to the business. Whewwwwww!

Well my next concern was the whole tax issuse. I did not want to be tax out the u know what because I was a LLC. Well I picked up the phone called the IRS and was told that but because I am the only member in my LLC (single member) I would be taxed just as a Sole Properitor would be. So you get the best of both worlds if you choose LLC you can still get the benefits of a Sole Properitor if you are a single- member LLC. which I was not aware of at first. "I learned a lot in 1 week"

I'm still learning as I go, I'm in school finishing up a degree in Business Management so i take what I learn in my business classes and confirm it with my local agencies for "real world" and region specific details.
Hope this helps. thumbs_up.gif

indydebi Posted 30 Apr 2009 , 11:43am
post #8 of 19
Quote:
Originally Posted by tmcakes

the min limits USAA writes is $1,000,000 (there is no way I can see me needing that much but,ya never know what people will do today for a $)



You'd be amazed how much you need! As you say, this is usually the minimum that a company will write for, and when you need to show proof of insurance, most places require a millino dollar minimum ... i know one place that requires 2 million.

BTW, just as some general FYI, when a place asks for insurance, they are not looking for a photocopy of your policy. That does THEM no good whatsoever. They usually need a Certificate of Insurance, which your agent will create and send to them. This Cert Of Ins adds them as an add'l insured (and it's usually a one-day thing, but dont' hold me to that part ... could vary by ins company). This means that if you do something wrong that causes a client to sue, and the client sues you AND the facility (which is common), then the facility is ALSO covered by YOUR insurance due to YOUR neglect. I've seen some CC'ers say they carry a copy of their insurance policy with them and that's pretty much useless. The facility could care less if YOU'RE covered .... they want to make sure that THEIR behind is covered! thumbs_up.gif

trumpetmidget Posted 3 May 2009 , 2:34am
post #9 of 19

I have a friend who is a lawyer and she was the one that advised me about LLC vs. Sole Proprietor. Basically, if I am making cakes for family, friends and friends of friends, I am okay staying with sole proprietor. But, once I start making cakes for strangers, than I want to look into an LLC. Since I only made cakes about 1-2 a month, LLC wouldn't be worth the investment. I don't know if each state is different, but my friend would do it for me at cost of filing paperwork (no lawyer fees) and it was over $500 to get started. Then, I would have to get business insurance rather than a rider on my homeowners insurance. My homeowners insurance is through Erie. I don't know exactly how much I am covered. I guess I should know that, but I don't. I also have additional insurance called an umbrella policy that is an extra million for $100 a year. We got this when we moved in because there was a pool in the backyard. We've since taken down the pool, but kept the insurance. Seeing as I have been sued in the past (something not my faught and I wasn't even an adult - color guard accident), I am VERY cautious about stuff like that. People will sue over anything.

cupcakebliss Posted 4 May 2009 , 6:59pm
post #10 of 19

Thanks for the advice. I definetly still need to do some research on LLC, sole proprietorship, and insurance. I am still looking for a good insurance agent to talk to. I talked to my own and a few others, but am not satisfied yet. You guys have provided some great information to think about.

trumpetmidget- I had no idea an LLC cost that much in PA. Ouch.

pattycakesnj Posted 4 May 2009 , 7:13pm
post #11 of 19

If you go on your state's web site, usually they have all the info regarding LLC, etc. The good thing about LLC, besides protecting your personal assests, if you are a single member LLC, you file your business taxes together with your personal taxes, no need to file a seperate tax form. In NJ, becoming an LLC only cost $75 to file, and every year after is only $50, and you could do it all online at my state's website and when you were done it linked you to the IRS to get your federal tax id number. It is very easy. Check your state's website and good luck

indydebi Posted 4 May 2009 , 8:41pm
post #12 of 19

If you're shopping for an agent, try going to Dave Ramsey's website (www.daveramsey.com) and find one of his ELP's (Endorsed Local Provider). That how I found my CPA and I was very happy with the work he did for me.

BAKE-ME-A-CAKE Posted 6 May 2009 , 7:20pm
post #13 of 19

Well I found myself in a predictament when I called my insurance compay. I live in PA and have Liberty Mutual homeower's. I was told that if I start a home baking business then they would no longer be able to cover me at all for homeowner's insurance. They suggested that I contact an insurance agent. I need commercial insurance. When I asked well then how do I get homeowner's insurance, she said I have to talk to an agent.

Here's where I'm at right now: I just got my permit from the twp, I applied to the Dept of State (PA) for my license to charge sales tax, I applied to register my business name and I applied with the Dept of Agriculture for my license. After all that I can have my inspection. I set everything up as a sole proprietor.

But what do I do about this insurance thing? I feel like I really screwed things up. Does anyone know how I can find an insurance agent? Do I have to pay them? I guess this is a silly question since I was able to figure all this other stuff out, but now I'm stuck.

cupcakemkr Posted 6 May 2009 , 7:35pm
post #14 of 19
Quote:
Originally Posted by djcakesPA


But what do I do about this insurance thing? I feel like I really screwed things up. Does anyone know how I can find an insurance agent? Do I have to pay them? I guess this is a silly question since I was able to figure all this other stuff out, but now I'm stuck.




Insurance companies are paid similar to real estate brokers or mortgage brokers - by the company you choose to do business with. They get a percentage of what they sell.

For an LLC in MA it costs $500 per year, I am in the process of setting up now.

indydebi Posted 6 May 2009 , 8:50pm
post #15 of 19

I worked 15 years for a large insurance company, in the processing dept of commercial coverages, and in the personal homeowner and auto depts; AND am a licensed life insurance agent......

Quote:
Quote:

I was told that if I start a home baking business then they would no longer be able to cover me at all for homeowner's insurance. They suggested that I contact an insurance agent. I need commercial insurance.


This is what happens when you call the COMPANY instead of an agent. Since you have a homeowner's policy, you were directed to the personal insurance dept. Personal insurance does not cover commercial ventures, so she was correct (based on the assumed wording of your insurance contract) that a personal policy will not cover a commercial venture. And if there is a commercial risk, the company will not accept the risk and will cancel the homeowners policy.

Which is why you need a commercial policy. Which the personal insurance dept does not issue.

Quote:
Quote:

When I asked well then how do I get homeowner's insurance, she said I have to talk to an agent


Right. Because insurance is sold thru agents. RARELY does an insurance company sell directly to the policy holder, unless you buy those internet or TV coverages.

When I worked for a large insurance company, once in a blue moon, we'd get an insured who would call us direct and we'd have to tell them that we work thru agents, and they'd have to call their agent for any insurance questions. THe agent has their file ... the agent can answer their question. No we DON'T sell insurance direct .... that's why we had agents in place.

Quote:
Originally Posted by djcakesPA

But what do I do about this insurance thing? I feel like I really screwed things up. Does anyone know how I can find an insurance agent? Do I have to pay them? I guess this is a silly question since I was able to figure all this other stuff out, but now I'm stuck.



Insurance is sold thru agents, who know all the laws and many times, represent multiple companies, so they can pick and choose the best company with the best coverage.

If you want to pick an agent from the phone book, search for an independent agent (not a State Farm agent, for example, because he only represents State Farm. An independent represents multiple companies). ANother option is to go to www.daveramsey.com and selecte one of his ELP (Endorsed Local PRovider). These are folks who adapt to the Dave Ramsey financial philosophy and are highly recommended. I found my CPA this way.

Quote:
Quote:

Do I have to pay them?


Well, they don't work for free or as a hobby. icon_biggrin.gif You pay the premium and the agent earns a commission on the premium. the agent is paid directly by the company.

BAKE-ME-A-CAKE Posted 6 May 2009 , 9:38pm
post #16 of 19

Indydebi -
Thank you for the information. I wish I was more informed a little earlier today. I don't have an agent. Somehow, long ago, I just signed up with Liberty Mutual because my folks had me tagged on to their auto insurance as a kid and then I started my own policy. Later on, I added homeowner's. Indydebi - Is it your belief that I just got myself cancelled? I can't believe I made such a mistake after 19 years with them. I thought I was doing the right thing by just calling to inquire what a policy change might run me. I didn't understand about the company vs. an agent. Boy do I know now!

indydebi Posted 6 May 2009 , 10:27pm
post #17 of 19

No, you did not get canceled. However, I would venture a guess that they may look closely at your policy to make sure you're "in compliance" with the coverage you have.

We (the insurance company) would sometimes pay for an Equifax investigation on questionable policyholders .... someone from Equifax would go to the house, look it over, talk to the neighbors, etc. It's a very common practice and not necessarily only done on "flagged" accounts. They are just wanting to see if you are running a commercial venture or not. (We'd do this in the personal insurance dept if we suspected, for example, a teenage driver in the house but none were listed on the policy.)

Just find an agent ..... a good reputable one will get you everything you need. Talk to people at work, people at church, check Dave Ramsey .... out of all of those folks, you'll get a couple of good referrals.

BAKE-ME-A-CAKE Posted 6 May 2009 , 11:34pm
post #18 of 19

Thanks Indydebi.
I guess I've been a bit mixed up. It turns out that maybe I was going in the wrong direction completely and I don't need a rider to my homeowner's at all, I was just following the lead of some of the posts I saw here. I won't have customers coming to my home (the township doesn't allow that), so what I need to protect myself from is someone potentially getting sick etc from my cake not from someone tripping on my property.

I just spoke to a lawyer friend and he said that if I get a business liability policy then the homeowner's insurance should not have any grounds to drop me because that coverage would take precedence should anything happen. The homeowner's insurance company wouldn't be the one they're going after, the business liability policy would be the one to go after.

I will take the advice and I will talk to an agent...but
I'm still a little confused icon_confused.gif , because the people who only have a rider on their homeowner's policy, are they covered if someone gets sick or is it just if someone trips and falls on the property etc. Could anyone answer that (perferably someone who has the rider as their sole insurance)?

Now I don't know if I should shop for a new homeowner's policy that will give me a rider that would cover if someone got sick etc. or if I should shop for a business liability policy like my lawyer friend suggested. The problem with the business policy is the cost. I'm only looking to make cakes for profit on the side... I don't think I'd make a profit (or not much) with a $500 hypothetical policy (from what I see in the posts). I feel like giving up icon_sad.gif ...but I don't want to.

indydebi Posted 6 May 2009 , 11:47pm
post #19 of 19
Quote:
Originally Posted by djcakesPA

Now I don't know if I should shop for a new homeowner's policy that will give me a rider that would cover if someone got sick etc. or if I should shop for a business liability policy like my lawyer friend suggested. The problem with the business policy is the cost. I'm only looking to make cakes for profit on the side... I don't think I'd make a profit (or not much) with a $500 hypothetical policy (from what I see in the posts). I feel like giving up icon_sad.gif ...but I don't want to.




These are exactly the questions that an agent will be able to answer for you. thumbs_up.gif

(And if you think $500 is expensive, wait until you get your lawyer's bill when someone sues you. icon_rolleyes.gificon_biggrin.gif )

Dont' give up! In the grand scheme of things, $500 is not a fortune. I know it is if you don't have it, but it's $10 a week, less than $2 a day. Give up 2 cokes a day and you got it covered. Pack your lunch one day instead of eating at McD's and you're ahead. You can do this! thumbs_up.gif

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