The Business of Art: Business Insurance for Individual Artists
The old adage business is personal rings true for many artists. Depending on where you are in your career and practice as well as your personal preferences, you may find that there is a lot of overlap between your personal and professional life. Perhaps your studio space exists somewhere in your living quarters. Maybe your close friends assist you in the production of your work. Or, maybe you subsidize the purchase of your materials with income from another job. Whatever the case may be, sometimes the sense of familiarity that comes with blurring the line between the business and personal aspects of your life can complicate the management of your practice.
There was no better time that I, along with many artists living in the Northeastern region of the United States, came to that understanding than in the aftermath of Hurricane Sandy. For many months following the storm, I attended talks presented by art service organizations throughout New York City that were geared specifically towards affected artists.
Regardless of the topic of each talk, the Q&A almost always came down to artists expressing frustration and defeat upon discovering that their homeowners’ or renters’ insurance would not cover the damage to the studio space in their homes, because their insurance companies argued that the space was being used as a business. There was equal frustration when some received responses from their insurance companies that their materials and equipment were also considered business expenses and would not be covered. And, there was downright hurt when many artists also discovered that 1.) their artwork was covered only if they could produce receipts expressing the market value of their work, 2.) the artist’s assessment of the value of their art was not covered because of lack of receipts, but they could recoup equipment and material costs (minus depreciation) if they had receipts, or 3.) their artwork was completely not covered and that without the needed funds, there would be no way to cover restoration work on damaged pieces.
It was a difficult learning moment for many of us throughout the arts community. From that experience, I wanted to share some of the important takeaway points that I learned about what you should consider when weighing whether or not you should invest in business insurance.
First, it is important that you evaluate whether or not you should consider the production, exhibition and sales of your creative practice a business. Three basic questions to keep in mind, when making the decision on whether or not you should classify yourself as a business and pursue business insurance include:
Are you making art with the intent of making money off of the sales or exhibition of the work?
If you are selling work or creating work with the intent to sell (such as running an online store, exhibiting your work for consignment sale at a gallery, etc.), business insurance is something to seriously consider.
According to an Online Studio Protector Guide published by the national art service organization CERF+ (Craft Emergency Relief Fund + Artists’ Emergency Resources):
Insurance companies define a business as any activity in which you accept money in return for goods or services. It does not matter if you do not have a business license, do not show a profit, or are trying to “fly under the radar.” If you sell something you make, you are in business. Once you are considered a business, insurance policies from homeowners to renters insurance no longer covers your activities (including visitors who have come to see your work), materials and equipment. Your finished work will also no longer be covered as well.
Are you prepared to handle the cost associated with liability claims?
If you plan to have the public or select individuals come in contact with your art at a studio, gallery space, festival/fair, classroom or any other setting, you are at risk for being held liable for injuries sustained by anyone who comes into contact with your work. The same can be true of volunteers or paid workers who are assisting in the production of a work. Business liability insurance can help protect you against paying for damages out-of-pocket.
Are you concerned about recovering the loss of expenses or potential income, should a disaster (natural or manmade) happen that renders your work unsellable, unsuitable for exhibition, or missing? What if something happens that renders your studio or workspace uninhabitable?
Business insurance provides a range of coverage opportunities for artists who need to protect their artwork, materials, equipment (Business Personal Property Insurance); physical studio (i.e. Property Insurance); and even recover their loss of income (Business Interruption). These types of policies are particularly beneficial as it is very likely your regular insurance policies (including homeowners and renters insurance) will not protect you (or someone who is affected by your work), your work or your equipment/materials, as they often do not cover expenses that are perceived to be related to business.
If business insurance is the right choice for you, then the next question is: What sort of insurance policy should you consider purchasing? There are no cookie cutter answers when discussing business insurance options. Depending on your needs, the value of your work, your activity, and discipline, there are a variety of options to consider. A very basic list of insurance policies that will likely be relevant across disciplines has been included below:
Liability Insurance – While there are many variations on types of liability insurance (e.g. general liability, event liability, professional liability), the general idea is that this type of insurance protects you in the event that someone becomes injured as a result of coming into contact with your work or your workspace (think studio visits, gallery shows, art fairs, etc.).
Example: If you are a teaching artist freelancing at various schools, community centers and other venues, you may want to consider taking out a professional liability policy to help protect you. The school or community center may be covered under an insurance plan; however, in certain instances, that coverage may not fully protect you from potential cost incurred from legal action taken due to injury to a student, misconduct claims, or claims of failure to educate and misinform a student.
Business Personal Property Insurance – This covers your business related materials, equipment, and other physical properties that aid in the production of your work. See also: Fractured Altas’ Equipment or Artwork Insurance
Example: If you are a musician who is impacted by a natural disaster or manmade occurrence that results in damage to or loss of your musical instrument(s), the value of your instrument(s) may be difficult to recover from most insurance companies as they will likely be more prone to replace it at its depreciated cost (or actual value). By investing in Business Personal Property Insurance, you are more likely to recover the full replacement value.
Property Insurance – Covers the physical structure in which you produce and/or exhibit work. NOTE: If a workspace is in the same physical structure or on the same property as a residential space and you already have homeowners’ or renters’ insurance, be sure to check that housing your business on the same property or in the same building doesn’t void your existing policy. If it doesn’t, make sure to get the statement in writing from the company. Also, you may want to check in with your homeowners’ or renters’ insurance agent first to see if you can get a special rider that will allow you to have your business covered for an additional cost, instead of taking out a new additional policy.
Example: If you are a visual artist who is impacted by a natural disaster or manmade occurrence that results in the damage of a studio or workspace, homeowners’ and renters’ insurance will not cover your loss. Property insurance is the only way to cover the cost of damage for spaces deemed an area of business.
Inland Marine Insurance – Equipment, material or artwork coverage items that are in-transit or temporarily housed away from your property (such as a shop or other place of business).
Example: Inland Marine Insurance can be useful for visual artists whose work is transported to and from places such as studios, galleries, fairs and the residences of patrons.
Business Interruption – Compensates you for income lost due to some sort of disaster that prevents you from using your studio/workspace for a period of time. Business interruption can be used to cover the partial or complete cessation of work-related activity for whatever period of time that is designated in the policy (e.g., compensate a painter for the one month they couldn’t work because their studio was damaged after a flood). If after that period of time, business is still prevented from being fully restored, Extended Business Income (if purchased prior to the incident) can be used to continue to support the business owner.
Example:If you are an author and have scheduled a number of confirmed paid readings that were interrupted by a fire or some other unforeseen occurrence, a business interruption policy can help you recover some of the income you lost due to not being able to participate in a scheduled event.
Flood and Earthquake Insurance – Damage caused by earthquakes and floods are not covered by any other plan or policy, other than ones taken out to explicitly address the impact of a flood or earthquake. These policies exist as two separate types of plans. You do not have to be living in an earthquake or flood zone to purchase these policies.
Artists across disciplines should consider investing in Flood and Earthquake insurance (even if you have business insurance), particularly if you are in a flood or earthquake-prone area. Many artists impacted by Hurricane Sandy realized that if the damage to their property, equipment, materials or work was due to flood damage, not even their business insurance covered it.
Are policies expensive?
Just like health insurance, business insurance can be taken on as either a group or individual plan. Although not always the case, opting for a group plan may offer the best value, since they are usually offered at a discounted rate due to having a larger group of people participating in a single plan. Many art-focused membership organizations and professional unions/associations (e.g., American Craft Council, Fractured Atlas, International Encaustic Artists) offer the option of joining a business insurance plan as part of their membership.
What are the first steps to starting the process of looking for insurance?
- Make sure operating a business on your property won’t void your renters’ or property insurance. Contact your agent and discuss your options. Whenever possible, get a definitive answer from them in writing to avoid complications later on.
- Documentation. One of the most important things to do, both before and after a disaster is to have documentation of everything you are claiming (i.e., your workspace, equipment, materials, work, etc.). Whenever possible, should a disaster strike, it may be beneficial to have photographs of things after they have been damaged, too.
- Creating an inventory/price list. Once everything has been documented, create an inventory list with prices (and if possible receipts) of everything and update it frequently.
- Keep a list of works sold and their value. In order to claim the value of lost art works, they should have a proven market value (even that value is based off of similar works that you have produced and sold). Make sure you create receipts when selling works to offer proof of the works’ value.
- Depreciation of material and equipment value. Keep in mind that when insurance companies reimburse the value of a lost item, such as equipment or materials, they will likely base their reimbursement amount on the depreciated current value.
- Save receipts in offsite storage to have proof of purchase and value of materials/equipment. Save copies of all the aforementioned documentation both on and off-site. Also, consider emailing copies of receipts to yourself as well as having them stored in services such as Dropbox or iCloud.
Things to keep in mind as you are researching business insurance plans:
- Will your work be covered from damage by natural or manmade disasters and theft?
- Will your studio/venue be covered from theft or damage?
- Will you be covered should a third party sustain an injury as a result of coming into contact with or participating in your art?
- Will you be covered if your work is responsible for damaging a space (gallery/venue/etc.)?
- Will you be covered should one of your assistants/workers or volunteers become injured due to your art?
Where can I learn more about insurance policies? Are there are organizations that can assist me in my decision making process?
For an overview of different types of insurance plans and tips on finding an appropriate broker or policy, visit the links below:
CERF+ Online Studio Protector Guide
Fractured Atlas’ Insurance in the Arts — Your Virtual Pocket Guides
Business Insurance: Can You Afford to Be Without It?
There are many points to consider when thinking about business insurance. However, ultimately, if you believe your work (and the time spent to create it) has monetary value, it is worth giving serious thought to investing in a plan that will cover your investments. In addition to contacting organizations that work with art specific business insurance policies, it is also important to go over any other insurance policy you have to get a sense of what is covered as to avoid confusion and potential financial hardship in the future (especially, at a time when you may find yourself to be particularly physically and emotionally vulnerable).
Toccara A. Holmes Thomas is Program Associate, NYFA Source.