You’re a contractor starting your very own contracting business and you’re finally at the insurance crossroad. Questions like: 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? have most likely popped into your head.
Insurance can be a headache to understand, and there is a lot to know, but with the right guidance, you should be on your way to starting your first job as an insured contractor. As a contractor, you might only be required to carry General Liability by your client, but this is only one of several policies you should consider obtaining.
When looking into insurance as a contractor, you should consider 4 different types of insurance:
● General Liability
● Worker’s Compensation
● Commercial Auto
● Inland Marine or Contractor’s Equipment
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 and avoid when searching for your insurance.
For general liability, also known as contractor’s liability or business liability, there are 7 principal things (or 7 sins) you are going to want to consider so you don’t make these mistakes.
1. Choosing your agent: As obvious as this may seem, you are going to want to choose the right agent for your business. Look into and agency that specializes in liability for contractors. If your agent doesn’t handle contractor’s liability on a day to day basis, he is probably not up to date with a market place that is changing day to day like the construction industry. Make sure your agent is independent so that he/she isn’t tied to just one insurance company and can really shop around and find you the best price.
2. Occurrence vs. Claims made policy: This one can really put you out of business if you make this mistake. The difference between these two is that an occurrence made policy covers you for a job done during the policy period no matter when the claim was made, while claims made policy covers you for a job done during the policy period only if the claim is made during the policy period.
Let’s say you have a claim made policy and you’re on your last month of the policy term and you do a job on that last month. After a month, your client realizes that you made a mistake on the job and due to that mistake, there are over $50K in repairs to be done, so your client decides to file a claim. By now the policy term is up and your insurance won’t cover you for that claim even though it was a job done while your policy was still in force and now you have to pay $50K in repairs out of pocket just because you wanted to save a couple of hundred dollars on claims made policy. For this reason, we always recommend going with an occurrence made policy for a contractor.
3. Insurance company rating: Make sure you get a carrier that is A-rated. You could consider a B rated company, but anything less than a B rated carrier can be a potential risk for 2 reasons:
● There is a chance that this company could go out of business.
● If you do any work for the state or are looking to get your contractor’s license, the state usually doesn’t accept anything lower than a B rated insurance company.
4. Exclusions: Like all insurance policies, there will be exclusions on your contract. Make sure you take a moment to read through the exclusions and make sure you are getting the coverage you need for your business. If you will be doing some roofing, for example, this is usually excluded from your policy but can easily be added as an endorsement, so you would be covered for roofing also. Go through the exclusions and let your agent know what you will and won’t be
doing as a business.
5. Endorsements and Certificates of Insurance: Aside from getting insurance because you need to be covered, you are probably thinking about getting insurance because a client needs you to show a certificate of insurance or the state is requiring a certificate to get or renew your contractor’s license. Whichever the case, you need to make sure that your agent knows what he/she is doing. Always check that the certificate has the correct policy number, policy term and is signed by the agent. Also 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.
6. 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.
7. 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?
We know shopping around for insurance can be a nightmare. Questions like, “What type of insurance do I really need?”, “Am I getting the coverage I need for my business?” and “Am I paying the right price for the peace of mind I deserve?” can really stun you and your business’s growth. For no cost at all, we will be more than happy to shop around for you, answer any questions you may have and service all your insurance needs. So, don’t hesitate to pick up the phone and give us a call at 888-973-0016.