Posted by Frank Chin on May 08, 2007 at 06:54:46:
I think through these issues often.
I own some rentals as well as a business in an LLC. An LLC is formed to run any business of any form or type, some with negligible risks, to other of very high risk, say, forming a school to teach “sky diving”.
The insurance company must evaluate the risk for each distinct business. For the “repair and tire wholesale business” I got, the insurance runs $12,000/year", for a million coverage, far higher than the $300 or so a year I pay for an umbrella policy for myself, for $3 million coverage.
I do not expect insurance to cover the business for a mere $300/year as many more things can go wrong with car repairs, and tires, as compared to the rental business.
From time to time, depending on the insurance market, I have to get a “commercial” umbrella policy for the rental business, which some years back cost me $1,200/year for a million coverage, compared to a little over $100/year at the time. This is due to companies here limiting personal umbrellas to “6 properties”, and from time to time, the limit is reduced from 6.
I’m also told, that once I go beyond six, get a commercial umbrella, the cost is dependent on the number and risk of the properties. I intuitively understand that they’ll charge more than $300/year if I own 10 shopping centers, 50 office buildings, plus the “Empire State Building”.
There can be a reverse problem as well. For my business in the LLC, I have situations where I have an employee pick up parts in his or her own vehicle. Or, they sometimes go to the bank in my vehicle.
In these cases, personal property is used for a business purpose, and I was told that the insurance carrier can deny claims if the employee, or even myself gets into an accident while getting the part, or going to the bank, and it was found out that they were doing it for business. I tell my employees to say they’re on the way to the store to say, pick up lunch, if anything happens.
Of course, I could get commercial coverage for my vehicle, that’ll cost three times as much as for personal use.
Someone wrote a post here sometime back about someone who bought “a million” coverage for a yacht. He rented the yacht out for a party, the yacht sank, and insurance was denied. The reason was coverage is extended for personal, not commercial use, i.e. renting it out for a party.