Are you an artist whose hobby or interest has developed into real sales? Or an established professional who’s been driven home by the COVID-19 pandemic? No matter who you are, if you’re making money from the art you produce at home, it’s time to ask if you’re properly insured. You may not know it, but you’ve become a business owner — and your existing renters or homeowners insurance is likely woefully inadequate.
Once you sell your art beyond a certain threshold — usually defined as exceeding $2,000 per year in revenue — insurers will view all property and activities arising from creating it as business-related. It doesn’t matter whether your studio is in your garage, shed, basement, closet, bedroom, attic, or a detached on-property building — that area becomes your business premises, and is subject to significant limits and exclusions in a normal homeowners or renters insurance policy.
Why won’t my existing renters or homeowners insurance cover my in-home business?
Homeowners and renters insurance policies don’t cover in-home businesses by design, and even specifically limit or exclude business activities. Those limitations and exclusions include:
Business property coverage
If your business-related artworks, equipment, materials, books, etc., get stolen or damaged, your homeowners or renters insurance may not cover them at all, or only for a very limited amount (known in the insurance world as a sub-limit).
The limit is usually set to no more than $2,500 for business property. Furthermore, your artworks would be valued for their material cost, not their artistic value (more on this later). In addition, to be covered at all, they must be located on your premises, and not in a detached building.
Let’s say someone delivers a package to you for your studio’s business purposes, and they trip and fall on your property. Or, imagine a client or customer is visiting to view or purchase your art, but your studio is full of sharp materials, and they cut themselves. In either circumstance, you may be held liable for medical bills or lawsuits — but your homeowners or renters insurance won’t cover losses arising from business activity.
Buildings used for business purposes
If, like many artists, you’ve set up your professional studio in a detached garage or shed that’s located on your property, absolutely nothing in it is covered. Your homeowners or renters insurance will exclude it from coverage — even if it would normally be covered if it wasn’t being used for business.
Essentially, if you run an in-home art studio without business insurance, you’re taking on a big risk for two main reasons:
1. Personal liability exposure: If any business-related client gets injured at your property, you may be on the hook for tens of thousands of dollars in medical bills or lawsuits. That could put you into major debt and end your art practice forever.
2.Property loss exposure: The materials and equipment required to create art are expensive. If it all goes up in smoke, restarting your practice will be a massive burden you’ll have to shoulder all on your own.
Now that you’ve understood the risks at a high level, it’s time to think about choosing appropriate methods for insuring your art studio, and how business insurance works.
How should I insure my art studio?
The type of insurance you need, and how much, is dependent on your art practice and your circumstances. The following guidelines may help you:
If you’re a less established artist
As an up-and-coming professional, you may not have invested too much into your practice yet, so getting full-blown business insurance may be overkill. You may want to:
Use (or add riders to) your existing homeowners/renters policy
If $2,500 isn’t enough, you may also be able to purchase additional coverage with a homeowners or renters insurance rider (also called an endorsement) for an in-home business. If your insurer doesn’t offer this rider, you could also consider switching insurance companies.
However, even if you are able to cover more of your property, you may still be at risk for personal liability if a business-related visitor comes to your property and gets injured, like a delivery man slipping on your steps. (However, some insurers may also grant some very limited business liability protection — it’s critical to check your policy and confirm with your insurer.)
If you’re a more established artist
As an established artist, you may have significant amounts of business property, and may even have people assisting your practice on a part or full-time basis.
The types and amounts of coverage you may receive will depend significantly on the insurer you choose, so it’s important to communicate with your agent and let them know the type of art studio you’re running, where it’s located (whether in or near your home), how much money you earn, how many employees you have, and how often you have business-related visits.
With that said, you may want to:
Buy an in-home business insurance policy
An in-home business insurance policy will grant you more robust coverage, but less than a full business owners policy (BOP).
Depending on your insurer, this type of policy:
– Covers far more business property, with the standard amount being $10,000
– Covers your liability for $300,000 to $1 million, depending on your choice
– Covers income and ongoing expenses the business loses (like payroll) for up to a year
– May grant you other structures coverage, which covers your art studio in a detached garage or shed
This is a great choice if you’re more than just a very successful hobbyist, but also not a full-time professional artist running a bona-fide business.
Buy a businessowners policy
A businessowners policy (BOP) is going to provide you the greatest amount of protection, and is a good choice for those of you with a thriving home-based art studio that has employees, provides services to clients, and regularly has business-related customers and visitors. A BOP is generally comprised of two types of insurance:
1. Commercial general liability insurance
Commercial general liability (CGL) itself is a conglomerate of different types of insurance, all of which are designed to give your art studio general liability protection. The three major types that comprise it are:
– Premises Liability: Pays for injuries that take place at your studio’s premises. If your art falls off of a shelf and somehow injures a customer, you’re covered if they sue you.
– Products Liability: Pays for damages that occur as a result of using your product. Let’s say you create a sculpture that has a sharp edge that your customer wasn’t warned about. If they cut themselves on it and sue you, you’re covered.
– Completed Operations: Pays for damages, defense expenses, and settlements caused by your work after you complete a job. If your art studio provides off-premises services to clients, there’s a chance your work may cause an injury.
2. Commercial property insurance
Commercial property insurance, as you might guess, protects your studio’s business property. It will pay for the repair or replacement of property loss due to theft, damage, or destruction.
When buying a BOP, be sure that it will cover the entirety of the artworks, items, equipment you work with. Examples include:
– Completed artwork and work-in-progress
– Valuable papers and documents
– Business inventory, supplies, and equipment (like paints, tools, or other equipment)
– Paintings, ceramic, prints, sculptures, and other mixed media
– Fine art created by others in your possession
– The building you own or rent
A BOP will usually also cover items in transit (such as on the way to a gallery), on exhibition at a museum, on consignment in another person’s store or gallery, and in storage.
You can sometimes add extra coverage, like:
– Business Income and Extra Expense: Provides coverage if your studio needs to shut down temporarily due a fire or some other covered peril. It will cover your income and other covered expenses laike payroll, rent, and other financial needs while your property is being replaced or repaired.
– Employee Dishonesty Coverage: Provides coverage if your employee commits theft of money or property.
How exactly is my own artwork valued in insurance?
You may be wondering how an insurance company will value your completed artworks, or work that’s currently in progress — will they value them as the masterpieces that they are, or as the sum of their materials and parts? After all, if valued properly, your artworks may comprise the bulk of your property’s value — and it’s critical that you get them insured that way.
Each insurer varies on how they do this, but most will pay out based on appraised values and average selling prices. That means if you sold your last painting for $1,500, a similar painting of the same size and materials would be valued the same. And this would apply to works of other artists that you’ve collected, as long as you’re able to provide provenance.
By nature, insurance is complicated and varied, depending on the state you live in and the insurance provider you choose. To simplify your insurance needs, think to yourself:
– Do I frequently have clients or business-related visits to my property?
– Do I make a significant amount of revenue from my art studio, and have a large number of completed artworks, materials, and equipment stored in my studio?
– Do I provide artistic services to third parties who may be dissatisfied with my work?
– Do I have employees or part-time workers in my studio?
– Would I lose significant income if I weren’t able to continue creating art due to a natural disaster?
If you answered “yes” to any one of those questions, it’s time to talk to your agent about getting specialized business insurance for your art studio. While this article can help you understand the outline of your needs, you should have a specialist assess your exact circumstances.
Mark Slack is a career and business contract expert with over 9 years of experience creating products and writing guides that help professionals solve everyday problems. His advice has been featured in Yahoo, Mashable, TheMuse, and several other publications around the web. When he’s not providing advice to young professionals and budding entrepreneurs, he can be found hiking or practicing his Mandarin.