I doubt that's necessary ... likely your agent wanting to milk you for a little more money and a bonus.
As long as you are making less than 1000 dollars a year or so, the IRS considers whatever you are doing to make that money a "hobby", and untaxed income.
Now ... if you are making more than that much, you have the makings of a home business, which normal homeowner's insurance policies may not fully cover. THIS is the eventuality that is being hinted at ... but you aren't anywhere near that yet.
Your insurance agent needs to learn the legal difference between a business and a hobby, regardless of the tools and work involved.
edit - oops ... wanted to address the OP too!
Nice looking pens! Using the pre-drilled blanks from PSI? They came out looking good. I'ld go with a few more coats of finish to fill in all that wood grain, but some people like the feel of "natural" wood. As for price ...
I tell people up front who are wanting a pen ... I'll charge for the cost of the pen kit components and the blank + around $20 for my time (per hour) ... and an extra flat fee for additional embellishments (such as a decal, stone inlay, metal inlay, ect). That having been said, $25 for a slimline (or funline) just doesn't feel right ... feels too high but it takes me about the same amount of time and work as the higher priced pens.
That having been said, I rarely sell slimlines ... they are generally "gift pens" and the stuff I use for practice, these days. I turn one to try out a new wood or new technique, make sure it fits the appropriate guidelines, and hand it off to a soldier on or off base. (You know that "turn for the troops" type of thing? I just hand them out in person as I make them...)