What kinds of insurance should I carry for my touring band?

Only you can ultimately answer this question as the business owner but I’ll outline the primary types of insurance that bands carry, explain the purpose of the insurance, and give you a general idea of cost. With this information, hopefully you’ll be better able to make the decision of what insurance to carry.

General Liability Insurance

Purpose: This insurance covers you for property or bodily damage caused by your business up to a limit, usually $1M or $2M per incident. It is not uncommon for festival and government promoters to require a Certificate of Insurance for this coverage.

Example: If you throw drum sticks from stage and injure someone, this type of insurance would cover you.

Annual cost: Between $1500-2500 is the approximate range with $500-1000 deductible. You can get one-off coverage sometimes by being added onto the promoters policy in the case of festivals, or you can apply through https://www.theeventhelper.com for a one day policy that will cost around $200.

Workers Compensation Insurance

Purpose: This insurance covers medical bills and a portion of lost wages for a person injured on the job. This insurance is issued in relation to the state of residence of the employee or contractor. You might think, well, I have health insurance for that, but if your health insurance discovers that the injury happened on the job they may (and likely won’t) cover the medical bills.

Example: Crew member is pushing a case up a ramp into the trailer and his knee gives out. Or band member is on stage rehearsing and slips off the edge and injures leg.

Annual cost: Approximately 1-4% of annual payroll, depending on the state and the job the employee does. If you have all Virginia employees doing clerical work the rate may be 1.1% and if you have a FOH sound person on the road based in California the rate may be 4.0% or more.

Automobile Insurance for Owned Vehicles

Purpose: This insurance can coverage liability and collision. Most of you will be familiar with this insurance from insuring your personal vehicle. It works a lot like that except that sometimes an insurance company will want this policy to be a commercial policy which can be a bit more expensive.

Example: You hit a deer on the highway or get into a fender bender. You call up your company - Geico, State Farm, Erie, etc and they help you through the process.

Annual cost: $750-2500. I’ve seen this upper end go up to $4000 for a 3-year leased Sprinter but that was an outlier.

Hired and Non-owned Automobile Insurance

Purpose: This insurance covers vehicles used on behalf of the business for business purpose. It often covers rented buses or rented vehicles (like vans from the airport) or crew member vehicles in use for work.

Example: A crew member driving their own vehicle, towing the band trailer to meet the tour bus and the vehicle is involved in a fender bender. This vehicle could be covered. Or a tour bus is being rented by a band and damage is caused to it, this insurance would cover that.

Annual cost: $750 and this is added onto a commercial auto policy. I’ve not seen one of these written as a stand alone policy. Deductible usually $500-1000.

Equipment Insurance / Inland Marine Insurance

Purpose: This insurance covers your equipment and gear up to a certain amount per policy period. It can be a policy with scheduled equipment meaning that you list out ever piece the policy covers or it can be unscheduled where the policy just covers equipment up to a certain amount but the equipment doesn’t need to listed out. This policy covers equipment both on the road and in your studio (though you may also have renters insurance or home owners insurance for that gear). The basic idea of Inland Marine is that it covers equipment that moves around.

Example: Some jerk breaks into your trailer and steals your stuff. Happens all the time, right? Another example of this was a crew member using his personal truck to transport gear. His truck was broken into and the insurance reimbursed him for the lost equipment and his personal gear stolen since it was a business purpose and unscheduled equipment.

Annual cost: Approximately $500-1000.

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All of these insurance policies make sense and are well worth the investment to keep you financially secure in case of an accident. I have seen every one of these policies used with either our band or festival clients. The expense seems like a burden annually until you actually need to use one of these policies and then it feels justified and like a good investment.

Is a single-member LLC more expensive than a Sole Proprietorship, especially in California?

Ben,

My Tennessee based client is currently using his SSN on W9s. i want to move to an LLC. 

My client’s accountant is advising them not to due to the fact that we would then have to file in CA and it would cost $700 more to do so. Is that true?

Signed,

No More Sole Prop

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As always, remember I’m not a CPA, so you should consult with your CPA and lawyer on everything that you read here or anywhere. I often will read several sources on a subject and ask multiple CPAs. I’ve come to realize that tax related issues aren’t always black and white. That said, I’ll explain what I’ve learned…

1.  You don’t need an LLC to have a Tax ID. Even if he doesn't have an LLC he can still get a tax ID number for his sole proprietorship if you guys don't want his social security number out there.  https://www.irs.gov/businesses/small-businesses-self-employed/how-to-apply-for-an-ein

2.  Tax wise with Federal Gov't there isn't a difference between a sole proprietor and a single member LLC.  The single member LLC is a disregarded entity and ends up flowing onto a personal return just like the Sole Prop.

3.  That said often lawyers will recommend setting up an LLC and getting liability insurance to protect an individual's assets in case of a law suit; The corporate veil if you recall from Business Law 101.  As is stands right now with a sole prop, if in the case of a significant law suit involving the touring business, personal assets (homes, cars, etc) are all open game.  If you have LLC protection then those things can't get touched.  

4.  Regarding California or any state for that matter, my understanding is that if your business regardless of type (LLC, or Sole Prop) has nexus in the state then it needs to file a business tax return there.  Nexus means that the business operates there, earns money there, sells things there.... basically what happens every time a show happens in a state.  

That said, many bands making not much money play many states each year.  Technically even the smallest of bands, if they operate in multiple states, are supposed to file a tax return there.  But the administrative costs to do so would be too much for a small business.  So most businesses don't do it because such little money is made in each state.

California is a state like any other. Regardless of entity type (LLC, Sole Prop, etc) if your business has nexus there then it is required to file a tax return there. So just converting to LLC wouldn’t trigger the need for a return there. Having nexus is the trigger.

It is true that if you did file a corporate tax return in CA as an LLC there would be a $800 minimum tax which you wouldn't have as a sole Prop.  More info here. To the point in your email, a state having a fee is not unique to CA either. Most states, if you file there due to nexus, will have some kind of tax due.

5.  Other costs for the LLC might include: the tax return is probably a bit more expensive.  Most states have annual fees to keep the business active. Mass is $500/year for example. Obviously California is $800. Some states are minimal though. Virginia is $50 for example.

6.  Touring in Canada and AUS the limits would be the same as a single member LLC or as an individual.  You would tour in each place as an individual.  Both places have limits under which no withholding is required and likely no tax return required… but that’s another post for another day.

Ben