FAQ About Contractors Insurance

General liability Insurance has an exclusion for claims against faulty workmanship.The faulty workmanship exclusion is triggered where the claimed damage is caused by or resulting from an act, error or omission that is from the design, specifications, construction, materials or workmanship.

You need to make sure that if you hire subcontractors they provide you with a certificate of insurance(COI) naming you as an additional insured. This important for a few reasons:

• If you do not have a certificate from the sub, when your GL policy is audited, they will be treated as uninsured. As a result you will not be allowed to deduct what was paid from your sales. This will result in a higher premium.
• If they cause an injury or claim as a result of their work you can file a claim against their insurance rather than yours. Remember the more claims you have the higher your insurance premiums.
• This is critically important when it comes to workers compensation insurance for contractors. If you have workers compensation insurance and do not get a COI showing they have workers comp, the amount you paid them will be treated as payroll by your insurance carrier. This can be quite a significant sum depending on your trade. 

When you purchase your policy the agent will ask you what your estimated sales are.One of the biggest factors in determining the cost of an insurance policy is the amount of business you do. Since these are estimates most companies will “Audit” your policy at the end of the policy term to determine what your actual sales were. If there is a large discrepancy in the amount of sales you estimated and the actual sales you will receive a bill from the insurance company for the difference. This is not the worst thing in the world as it means you did more business than planned. The only issue is if you are unaware of it and you are surprised by a large bill later on.

A COI is a single page that lists information about the insurance policies you have. It lists things such as Your business name and address, Name of insurance company, Policy numbers, coverage limits and the policy term. There is also a section for additional insureds to be listed. This space lists parties you do work for. It contains their name and address. This is often requested by Large Contractors who you do work for, property owners and municipalities if you need to pull a permit or get licensed. At FarmerBrown.Com we normally turn these requests around in under an hour so you can keep working.

Obviously, you need to be in a trade that needs to be licensed to be able to advertise that. Otherwise you can say you are bonded and insured. If your trade does not require you to be bonded where you are located you can purchase a dishonesty bond. These typically cost around $150 for a $10,000 bond per year.

Pro-Tip- Getting your bond and certificate of insurance laminated is a great tool when you are at a prospective client’s house. You can show them you are a professional that takes pride in their business. It also differentiates you from your competitors. This should lead to more business.

Workers’ compensation is insurance that provides cash benefits and/or medical care for workers who are injured or become sick as a direct result of their job. It is required by law in most States. Every State has their own requirements. If you operate in more than one State you will have to comply with the requirements of each State.

The premium is based mainly on 4 things:

1. Amount of payroll
2. Class code of the various type worker i.e.
3. Clerical worker, Sales, Roofer etc.
4. Location of business
5. Experience Modification. This is your safety record or the number of claims that have been made.

You can get yourself in serious trouble with State agencies if you do not have the required coverage. This can lead to large fines along with being responsible for the costs of any injuries an employee may suffer.

The short answer is no. Most states allow an owner of a business to not have workers compensation for themselves. This will save you money. The downside is that if you are injured, generally the business is your main source of income so you may be put in a bind. Disability insurance is quite expensive.

It is something to think about rather than dismissing purchasing Workers compensation insurance out of hand, as it may provide you a lifeline if you are hurt while working.

You as a subcontractor will be asked to provide a COI showing that you have workers compensation insurance. The first question you may ask is why do I need to show this? The answer is that when the company that hired you gets audited by their workers compensation insurance carrier, their insurance carrier will ask them for copies of COI’s for all the subcontractors they hired and pay money to. If they do not produce a COI showing that the subcontractor has workers compensation insurance, the amount paid to the subcontractor will be treated as payroll by the insurance company. The failure to obtain those certificates will result in a large bill at the end of the audit.

You can get workers compensation insurance if you do not have any employees by purchasing what is called either a “ghost policy or if any policy’. This allows you to provide clients with a COI showing that you have workers compensation insurance. These policies cost around $1,500 a year. This allows you to meet any contractual requirements you may have to provide proof of workers compensation insurance.

Pro-Tip Getting COI’s from anyone you hire as a subcontractor is a good practice. In the event you are audited either for workers compensation insurance or general liability insurance. Remember it is a best practice to get the COI before you let the subcontractor start work. It can be a real pain to track them down months later.

If you have been in business for over one year, bid bonds are pretty easy to get if you have good credit. Good credit is generally a score over 700 with no bankruptcies.

If the total contract price is under $500,000, (It is the contract price not the bid bond amount that controls as the bid bond is generally 5% to 20% of the contract price), You can get a bid bond with a simple one page application with your signature. The turnaround time is generally 24 hours after receipt of a completed application.

At FarmerBrown.com we do not charge for bid bonds.

If your contract amount is over $500,000, you will need the same good credit score along with a balance sheet and profit and loss statement for the business for the past 2 years. A more extensive application and personal financial statement of all the owners is also required. The turnaround time for these is 48 or 72 hours after receipt of the completed application and required information.

If you have been in business for over one year, Payment and Performance bonds are pretty easy to get if you have good credit. Good credit is generally a score over 700 with no bankruptcies.

If the total contract price is under $500,000, you can get a payment and performance bond with a simple one page application with your signature. The turnaround time is generally 24 hours after receipt of a completed application.

If your contract amount is over $500,000, you will need the same good credit score along with a balance sheet and profit and loss statement for the business for the past 2 years. A more extensive application and personal financial statement of all the owners is also required. The turnaround time for these is 48 or 72 hours after receipt of the completed application and required information.

Payment and Performance bonds are like salt and pepper and normally go together in almost all cases. The cost for both of these bonds is generally 3% of the contract price. For example a bond for a contract price of $100,000 would be $3,000 total for the Payment and Performance bond. For jobs over $500,000 the rates are lower but those are calculated by the financial strength of the applicant.

The cost of the bond is like insurance and no money is refunded after the project is completed.

Most License and permit bonds can be issued immediately. They can then be emailed directly to you. They generally cost anywhere from $100 to $250 per year. There are a few exceptions such as California, Arizona, Washington and Maryland that have credit based bonds. To get the best rates on these you have to have good credit. Good credit is generally a score over 700 with no bankruptcies.

Some States and Municipalities may require live ink signatures on the bonds and/or raised seals (Cities in Ohio are the biggest culprits). These bonds can not be emailed and need to be sent by regular mail or FedEx.

Commercial and personal auto insurance are two different types of insurance that cover different events. Commercial auto insurance is only available for vehicles used for work purposes. Personal auto insurance is for when you’re driving your car for personal reasons.

Most personal auto insurance policies have exclusions, which means they may not cover your vehicle for business use or only offer minimal coverage for business use. Likewise, your commercial auto insurance wouldn’t cover loss or damage caused when using a business vehicle for personal use. That’s why you need both.  

You may think that you can get away with just having personal insurance but just think of the problem you may have if you are in an accident with your van with your advertising plastered all over the sides of the vehicle. Just imagine the claims adjuster’s response when they get the pictures. It’s just not worth the risk. Just recently a food delivery driver was car jacked while making a delivery. The car was found totaled and the driver’s personal auto coverage denied the claim as the vehicle was being used for income producing purposes.

Hired and Non-Hired Auto Insurance covers bodily injury and property damage caused by an automobile you hire on non-owned vehicles.  It will not pay for physical damage to the vehicle itself, but provides liability coverage to a business owner if one of these vehicles is involved in an accident that causes property damage or personal injury.  Many companies forget that their business has an additional exposure to a loss that arises from employees or others using hired or non-owned vehicles for company business. An example is you rent a box truck to take supplies to a jobsite. One of your employees while driving the truck causes an accident. You will have liability coverage for any property damage or personal injury they may cause. 

Non-owned coverage is the use of a personal vehicle owned by an employee, volunteer or anyone besides the insured doing company hours while doing company related business.  It applies to bodily injury or property damages arising from use of persons other than the owner, providers and receivers are all considered non-owned automobiles. An example of this is if you send an employee to the building supply outlet to pick up some things needed at a job. They take their personal vehicle and are involved in an accident. Again your business will have coverage.

Liability insurance policies have either legal defense costs inside or outside the policy limits. This is a pretty simple concept, but the difference in the two types of policies can be consequential in the event of a large claim.

When legal defense costs are inside the policy limits any amount paid by the insurance company lowers the amount of money available to pay any possible judgment or settlement.

If the defense costs are outside of the policy limits any costs expended on your defense does not reduce the amount available for payment of any judgment or settlement.

This is best explained by a simple example. Let us say there is a claim and you have the Standard $1 million liability coverage. Your business is sued as a result of an accident. There is a trial and a judgment against your business. The judgment is $750,000 and the insurance company spent $500,000 on your legal defense. This means that the total amount paid on your behalf by the insurance company is $1,250,000. If your policy has cost inside the policy limits, you will be on the hook for $250,000. If your policy has costs outside the policy limits you would owe nothing. It is important also to note that outside the limit policies are getting harder to find and generally cost more than the comparable inside the limits policy. 

It is important to know what type of policy you are purchasing. Is it a “claims made” policy or is it a “per occurrence” policy. There is a very important distinction between these policies.So here are the main differences:

Claims made policies only cover you if you have the policy while you are insured. If you continue to renew each year, it is generally not a problem.  You can open yourself to not being covered if you switch insurance companies or shut down your business. The reason for this is that if a claim comes up after your policy period and you did not renew the insurance, there will be no coverage. You can protect yourself from this by buying “tail coverage” covering your prior work.

Per Occurrence policies work differently in that if the claim occurred  while you were insured, there is coverage no matter when the claim is actually reported. A good example is you are a plumber. You do work that damages someone’s house but is not noticed for three years. If the damage you caused was a covered claim, this would be covered under a “Per Occurrence” policy regardless of whether or not that policy was still in force.  You would not be covered under a claims made policy, unless you kept the same policy renewing for those three years.

The reason people go with claims made policies  is that it is a less expensive policy. It provides less coverage long term. It can be an option for you  as long as you know what you are buying. Claims made policies can be as much as 40% less in premium as compared to occurrence policies. 

We get this question all the time. While certain policies like builders risk insurance can be purchased for just a specific job, General liability insurance and workers compensation insurance can not. The policy term is generally one year for both these policies. While General liability insurance can generally be canceled during the term, do not expect a refund for any amounts paid as Commercial General Liability policies are subject to minimum earned premiums or short rate cancellation penalties for a policy canceled before its expiration date.

Workers compensation premiums are a “one shot deal” and no refunds are issued after the policy is written.

Commercial Umbrella insurance provides an additional layer of protection increasing the coverage limits of your other liability policy  limits. Commercial umbrella insurance supplements your other liability coverage by taking over when your other liability coverage limits have been reached. It gives you extra coverage on top of what you have from other liability insurance such as your general liability, commercial auto liability, and other types of liability policies.  An umbrella on its own will do you no good. Commercial Umbrella requires an underlying liability insurance policy because the purpose is to increase the coverage you already have.

It is important to note that there is no coverage for worker’s compensation and other items that are not covered on the underlying policies.

Excess liability insurance is a type of coverage that offers additional protection exceeding the policy limits of a specific  insurance policy that the insured has. It does not affect the duration or terms of the underlying policy; instead, it increases the policy limits of that specific policy.

It raises the limit of the coverage provided by existing insurance. The excess policy does not expand your current policy coverage. It just offers a higher policy limit to protect the business from damages where the claim exceeds the amount of the underlying policy.

The type of policy applies to one policy only. So, if you choose to add excess liability insurance to the general liability policy, the limit for that particular policy will be increased. This can certainly be beneficial for your business if you are operating in a risk-intensive industry.

We take credit, debit cards and checks by phone or email. We can offer convenient payment plans as well. The payment plans have a down payment then 10 monthly installment payments.

The only way to know your exact cost for insurance coverage is to get a quote. The cost of insurance can vary greatly depending on a variety of things, so there is no set price.How Can I Get a Cheaper Rate on Insurance?

It is understandable to want to keep your costs affordable when you are working as a contractor. While it may seem like an added expense, contractor liability insurance is something you must have. It is okay to shop around and find the best policy at a price that works for you, get quotes and do your coverage research before making your decision. If you want to save yourself the time of asking around for the best rate, get a general contractor’s insurance quote with FramerBrown.Com. We shop around for you.

The simple answer is that you purchase contractor liability insurance and most of the time you will be required to have it before you can get the job. In the case that a job does not require it, you should not see this as a way to save money, because the coverage will protect you against unexpected accidents and damages that can eventually cost you financial loss.

Also remember that your clients will feel more confident in your work if you have insurance. The more confident your clients feel about you as a company and how you handle responsibility, the better. They will feel more persuaded to work with you and you will attract more jobs and referral business as your reputation is built on safety, responsibility and trust.

If you’re on the market shopping for general contractors insurance, you’ve come to the right place. ContractorsLiabilty.com has a reputation for providing fast and easy service. Instead of wasting your time shopping for insurance, we do it for you. We help you find the best rates, and send them to you the same day, so you can save time and money. If you’re a contractor you need insurance. Click here to get a general contractors insurance quote.