Liability Insurance

[gsnwag]

How much liability insurance is adequate for bulk vending? Just want to get some ideas before my agent try to sell me a policy.

[deee_z]

zero is needed.

[gsnwag]

Thanks. Just got off the phone with my agent, he says just that. He says that we don't make the candy, and there are fine lines in dealing with this if someone was to get ill. All in all none is needed according to my agent.

[alyssamma]

gsnway, you might want to look at some of the posts in the Regulatory Affairs section. In general "zero" is an ok answer, but only in certain circumstances. If you...

a) Don't have an LLC/S-Corp/C-Corp

Own a house or have other significant assets

c) Have more than a few machines

I would say you should get the insurance. The cost is between $2-300/yr.

While you probably could not be sued successfully if anything happened, the cost to defend yourself could be crippling.

Take for example the recent PB scare. From another post it says that RP are not affected...but suppose they were. And suppose someone got sick from eating them from your machines. That is a lawsuit waiting to happen.

Kevin

[gsnwag]

Thanks for that info. You are right anyone can sue anyone for anything. It is the defense cost that will bankrupt us. So how much is adequate? I own my home, we are an LLC, and we have multiple machines. I will be searching the Regulatory Affairs also.

[T BIRD]

I can give you what my insurance will cost me tomorrow when I get prices. I finally found an agent to help me.

[BluePlate]

A few things that I think we would be liable for.  If the machine cuts someone, a screw falls off and a kid eats it.  The machine tips over on a kid.

I have one restaurant that the front door is close to the road.  I have a bouncy ball machine in the front door.  What if a kid runs after a bouncy ball into the road.

I think insurance is needed.

 

[alyssamma]

If you have an LLC you are pretty much covered. Legally you're only on the hook for what you've put into the LLC. It is possible that a lawyer will try to take whatever assets your company has, but things you personally own (e.g., your house) are safe.

If you feel your LLC has significant assets then you should get liability insurance also. We paid $325/yr...but I think that is higher than others have reported.

We have an S-Corp and vending only accounts for a small percentage of our income. I figured for the cost it is better safe than sorry. But if you are just starting out (e.g., <10 machines), I wouldn't worry about it.

Kevin

[deee_z]

is a kid tips the machine over, shame on him and if the kid gets hurt, it is shame on him again. the machine did not jump out and attack. sue for what if they get sick, if they sue anyone, it will be the manufacturer of the candy.

[alyssamma]

deee, when people sue they sue everyone. It is a shotgun approach. You'll get sued along with the candy company - especially if you have assets like a house.

Again, it doesn't matter if you are innocent or not...the cost of defending yourself will pay for 20+ years of liability insurance.

Insurance is all about your comfort and risk level. For me, the small cost is worth the peace of mind. For others, it may not be.

But trust me, if something goes wrong, you, the candy maker, and anyone else close (e.g., the store owner) will be sued.

Kevin

[T BIRD]

I am about done researching for liability insurance here in the NYC suburb of Long Island. I got a price for $923 a year from two insurance companies. They said its high because of where my business is. I told him vendors on here pay upwards to $350 a year! He said thats because they do not live in NY.

I really would like to have insurance even though I am an LLC. What other choices do I have? None that I can see. Either pay the piper or dont pay the piper. You gotta love NY. If You make it here you can make it anywhere.

[alyssamma]

hehe...yeah, NYC is expensive

Since you have an LLC, you are pretty protected. The problem would be your basis in the company (which I assume is very low) and the company's assets, which I assume is not so low. That is the problem...the risk of someone suing to take the company's assets.

That being said, I am not aware of any candy vendors who have been sued. So, keep your fingers crossed

Kevin

[T BIRD]

Thanks for the feedback Kev.

[BluePlate]

The few lawsuits I have first hand knowlege of, the magic number seems to be $15,000.  You may consider putting that $1,000/year into a money market and consider yourself  "self insured".

 

 

[Skaught]

The few lawsuits I have first hand knowlege of, the magic number seems to be $15,000.  You may consider putting that $1,000/year into a money market and consider yourself  "self insured".

 

 

That's great advice! I never really thought of looking at something like insurance that way.

[Honda man]

I was quoted $250/year for $1,000,000 liabilty policy by my State Farm agent. Also includes property damage but not sure how much. Small price to pay for peace of mind IMO.

[jaharra]

The recommendation given to me by an accountant (specializing in small business) was to set up the business as an LLC for the personal protection and still have liability insurance to protect a profitable business, because a lawsuit could entitle the suer to future earnings and business assets.

It's also the right thing to do to take care of anyone that has suffered legitimate damages.  (I once knew of a lady who became relegated to doing a temp. job as a mail clerk because she had been injured in an auto-accident and lost her hand.  The employer of the driver who was at fault filed bankruptcy, presumed to avoid paying out big on her injury since her employment options for the rest of her life became limited.  In this case all 3 lost: she, the business, and the driver living with a guilty conscience.  I don't know if liability insurance would cover something like this situation or not or if the suing would just be limited to auto insurance, but it's sobering to me that if I were personally responsible for something that I may never imagine now, but had a great impact on another, that they weren't left high and dry like she was.  Especially if all it took was a few hundred a year to protect us both.)

His feeling was that $500/yr. give or take for $1M in coverage was small considering the risk. Although newbies may feel that amount could squeeze their pockets, it may be worth the peace of mind and protecting assets including retirement accounts.

An additional note regarding protection, that he shared with me is to set up a parent co. like an LLC to own all the co. assets.  Including vehicles and then lease the equipment to the operating co. (which is your vending service).  Then if your vending service is ever sued, that co. doesn't own any assets to go after and any customer's/suers have no relationship to the parent co.

Back to the auto accident example.  I worked for an employer once as a traveling salesperson that required the reps. to list the co. as a beneficiary or payee (something like that) on our auto insurance to protect them in case we were in an accident.  They also required that we bumped up our coverage quite high.  I found it didn't increase my premium much and later when an uninsured driver hit me, that extra coverage took care of my own injuries. 

I'm getting a little off track, but am actually mentioning this because speaking of insurance, does anyone happen to have any thoughts as to if we would ever want to list our vending co. such as an LLC on our personal auto insurance this way or would that not make any difference?  And in regards to the example above, any insight if liability protection would cover where auto insurance might leave off?

[alyssamma]

Wendy, I think you are overcomplicating this

If you are vending full time, and making some decent cash, then the things you are saying might make sense. But unless you are making $40K or more I wouldn't worry about leasing and forming parent companies, etc.

Kevin

[jaharra]

Kevin,

I find the Keep It Simple method appealing also, especially when the operation is part-time or in earlier stages.  

While the risk of lawsuits seems to be a minor concern, perhaps the liability protection would be sufficient to protect the small-time operator from losing any of their personal and business assets. (Unless there are exclusions or something that liability insurance wouldn't cover.)  Anyone know anything about that?

I think my nature tends to lean towards being more protective, rather than less so.   I mentioned my sales experience previously and with that I met many people from various backgrounds. I was surprised at how often I would come across learning about other's real life personal tragedies.  It stood out to me be more conscientous of ways to C.Y.A.   

One brief example that gives a little food for thought was of a hard-working fellow who built up an apartment rental business over the years and lost it all in a lawsuit from 2 of his tenants.  They had gotten into a physical fight with each other and fell 2 stories after knocking over his railing.  (Could something like that ever happen with vending machines?  I think it's unlikely just like this, but who knows?)  Regardless of his income, if his properties had each been in individual LLCs, I believe the most he could have lost was 1 property.  Or better yet in the previous example, if his operating co. had owned no assets, the suers likley would have gotten nothing but future earnings instead of everything.  I'm sure he regrets not having set himself up better, and it's human nature to think things like that always happen to "the other guy", and I do beleive they are rare.

He was lucky he had the ability to at least start over.  Perhaps he didn't have liability protection that could have saved his behind, unless it wasn't enough coverage.  In that case, having a strategy of an operating co. owning no assets would still have better protected the assets that were contributing to his livlihood and future retirement.   

I have a philosophy that it doesn't matter what I make if I lose it, so I probably focus more than usual on how to keep it.  Ok, ok, I do think this out a lot    since no one is exempt from lawsuits. :shock:  Perhaps a good option for small-time vending is to at least have liability protection and set aside funds in reserve to replace losses until it's felt to be appropriate to establish an LLC/Corp. to sheild personal assets,

I noticed on the "What type of liability protections do you have?" poll that 45%  of voters don't have any liability coverage.  There has only been 50 votes.  I might encourage those who haven't yet voted to do so to help give us a more accurate count.  I know that  I initially hoped to avoid this expense, but after exploring the subject, I intend to get it.

 

[alyssamma]

Wendy, there is a big difference between owning an apartment complex and owning vending machines

For full line you might have some serious cash tied up in there, but for bulk all except the very largest should have less than $10K. Even with full line an investment in an apartment complex should be higher.

If you are very comfortable w/business stuff then what you say is fine. My point was really for the average vendor. Doing multi-level LLCs, etc., is a PITA and not worth it for the small chance of being sued.

However, to each his (or her own). There is certainly nothing wrong with having extra protection.

Kevin

[jaharra]

Hey Kevin,

I figured the investment difference goes without saying and the mention of "food for thought" is to take from the example what is relevant to vending.

The similarity is that either with various apartment buildings or various vending equipment, both business' involve time and money to acquire income generating assets that can all be taken away in the blink of a lawsuit and/or future earnings can be garnished.

In either scenario, it would place individual business owners (whether small-time or not) back to square one. In fact, that's what bugged me most about originally hearing that story was that all those years of work towards whatever goal he was working on got erased, therefore no prize.   He just had his acquired experience under his belt for starting over.

BTW What is a PITA?  :cool:

[alyssamma]

PITA = Pain In The golpher

[jaharra]

Ha Ha,

Do you mind enlightening me Kevin on what makes it a PITA? 

[alyssamma]

Sure

For most people, simply setting up an LLC is difficult. The legal and accounting issues surrounding setting up 2, with one leasing equipment, etc. to the other is not for novices.

In fact, it would pretty much require an accountant and possibly a lawyer for most of the members here.

That is a lot of work to go through for a business that might make $10-$20K/yr. Even a business that makes more than that - it is much simpler to get insurance (good insurance) and be done with it.

A good lawyer will pierce multiple levels of corporate ownership anyway, unless you are very, very careful how you set it up (hence my comment about the lawyer above). Especially since you are the owner of both companies and it is obvious the reason you set it up is to hide assets.

This is why I say it is a PITA. It is just too much trouble to go through for vending.

Why go through all of that trouble when you can pay $250-$300/yr and get some good insurance?

Especially since few people on this board would have more than $5-10K in assets.

Hope this enlightens you

Kevin

[jaharra]

Thanks Kevin,

I think that keeps it simple.

I had asked the accountant about the same thing you mentioned of "couldn't the parent co. be sued?"  He mentioned that the suer doesn't have any relationship with the parent co.  I think this discussion helps us be informed and it sounds like you're indicating that any LLC/Corp that I have ownership in, regardless of any suer's relationship with them or not, could be subject to the suer's lawsuit?

Something else related to the PITA discussion, (that is also appropriate for the LLC or Incorporation forum) is the accountant suggested that if creating an LLC, one could file an "S election" with that for tax purposes.  Which would offer the benefits of a LLC of having less requirements that a corp. would normally have, yet would have the protection for personal assets that a Sole Proprietorship doesn't offer.  The strategy for the S election is that it offers the benefit of avoiding the 15% self-employment tax.  The small downside would be a requirement to have to pay oneself a reasonable salary, which would involve some effort or hire an accountant to cut the payroll checks.  His suggestion for that was to take a "draw" when money was needed and then pay $32 for the payroll check just once a quarter and subtract the draws against that paycheck.  In the event there was little profit, then it would NOT be reasonable to have a salary.

He gave me an example of a client (who has to pay higher taxes than most members here would) who was averaging $20k/year in taxes, and after adding the S election to his LLC, he reduced his tax obligation to $5k/year.  It was suggested that he then take the 15% savings each year and self-fund a retirement account.  (Better to give it to his IRA than the govt. if it's going out the door anyway.)

That example obviously reflects the higher income range you've mentioned that makes sense to become an LLC or Corp.  But what are your thoughts about this Kevin?  If a business made $10-$20k/year and the individual was able to save 15% in self-employment taxes, do you think that would overcome the PITA factor of spending $120/year in payroll checks, etc. by using an accountant, or not?