So what is Contractor’s Liability insurance?
You’re a contractor starting your very own contracting business. You’re finally at the insurance crossroad. How do you choose? Start by asking questions.
Here’s a checklist of the most important ones:
- How much does insurance cost?
- What limits do I really need for my business?
- Which insurance company should I pick to cover me?
- Do I only need one type of insurance?
- What am I really being covered for?
Insurance can be a headache to understand. There is a lot to know. However, you’ll get there with the right guidance. You will soon be on your way to starting your first job as an insured contractor.
So you want insurance. But what policies are best?
When looking contractor’s liability insurance, consider these 4 different types of insurance:
- General Liability
- Worker’s Compensation
- Commercial Auto
- Inland Marine
Each one of these is different and covers you in different situations. As with any purchase, there are things you are going to want to know before you buy.
What is General Liability?
Here’s another checklist. This time it is to help you choose the best contractor’s liability insurance.
How to choose your agent:
As obvious as this may seem, you are going to want to choose the right agent for your business. Get an agency that specializes in liability for contractors. An agent that doesn’t handle contractor’s liability on a day to day basis is probably not up to date. Will your insurance agent shop around for the best coverage at the best price?
Occurrence vs. Claims:
This one can really put you out of business if you make this mistake. What’s the difference between these two?
Let’s say you have a claim-made policy. You’re on your last month of the policy term. You do a job on that last month. After another month, your client realizes that you made a mistake on the job. Unfortunately due to that mistake, there are over $50K in repairs to be done. Naturally, your client files a claim.
But the policy term is up! Your insurance won’t cover you for that claim even though it was a job done while your policy was still in force. What do you do? You have to pay $50K in repairs out of pocket, just because you wanted to save a couple of hundred dollars by choosing a claims made policy.
For this reason, we always recommend going with an occurrence made policy.
Insurance company rating:
Get a carrier that is A-rated. At a pinch, you could consider a B-rated company. However, anything less than a B-rated carrier is a potential risk. Why is this? For 2 reasons:
- There is a chance that this company could go out of business.
- Your state is unlikely to accept anything lower than a B-rated insurance company.
There will be exclusions on your contract. There always are. Make sure you take a moment to read through the exclusions. Are you are getting the contractor’s liability insurance you need for your business? Remember that you can add endorsements for additional coverage. Ask your agent for advice.
Certificates of Insurance:
Aside from getting insurance because you need to be covered, you are probably thinking about getting insurance for other reasons. Your client needs you to show a certificate of insurance. Or, state law requires it. Whichever the case, your agent will check that the certificate has the correct policy number, policy term, and is signed by the agent. In addition, make sure you have the endorsements you need, like the additional insured endorsement (almost obligatory for any policy), waiver of subrogation and primary wording endorsement. Ask us to further explain these endorsements when purchasing your insurance.
Contractor’s Liability for subcontractors:
As a contractor, you are most likely going to sub out your work to another company or maybe even a friend in the same line of business as you. When doing this, make sure they have their own general liability with the same policy limits as your own! Require your subs to place you as an additional insured on the certificate and, if possible, have a written contract in your favor in case anything were to happen when on the job.
Admitted and non-admitted companies:
Many contractor’s get alarmed when they see that they are covered by a non-admitted carrier, but this might actually be a good option. Everyone who buys General Liability insurance is charged a percentage of his or her insurance premiums to go into a pool. This pool of money is set aside to handle claims by people in the state whose insurance company cannot pay their claims. This is usually when a carrier goes out of business and there are pending claims to be paid out to clients. The chances of an A-Rated non-admitted insurance carrier to go out of business is highly unlikely, so if you are offered a policy from a non-admitted carrier, don’t be alarmed, this could be an opportunity to save some money on your insurance policy.
Depending on the work you or your workers are doing, the class code for worker’s compensation coverage is assigned. Each class code has its rate, so a roofer’s rate is going to be a lot higher than someone who just does flooring, for example. Let’s put this into numbers. If you have 2 employees, one that does roofing and one that does flooring, and you pay them $35,000 each a year, we would have to assign the employees to their respective class code. Let’s say, for the sake of this example, the roofing rate is 10 and the flooring is 3. This means that the premium would come for (35000 x .1) = $3500 for the roofer and (35000 x .03) = $1050 for the floorer, bringing the total to $4550.
Worker’s compensation isn’t the cheapest of policies for a contractor, but it is important to have when required. Many contractors try to avoid paying more by not being transparent to their agents when talking about payroll, this is something that shouldn’t be done at all! The carriers audit the companies they are covering and lying on your application for worker’s compensation can lead to huge fines and even being blackballed from having worker’s compensation in the future. So always be transparent about your company when speaking to your agent.
Commercial Auto and Inland Marine
For a contractor, if you do any work yourself that isn’t subbed out, you probably have your own set of tools and you van to carry them around from site to site. Make sure you have the correct coverage for this. On some occasions, it’s required by clients, but even if it isn’t, it would be a good idea to consider getting this for your company.
Why choose us?
For no cost at all, we will be more than happy to shop around for you, and answer any questions you may have and service all your insurance needs. So, don’t hesitate to pick up the phone. Call Contractor’s Liability at 866-225-1950.