Insurance Learning Center
We know insurance can be a challenge, and we are here to help! No matter what business you’re in, our goal is to deliver the best services and solutions for your home, business and family. This section has a number of tips that can help you become a savvy insurance purchaser. So keep going and learn the secrets of low-cost insurance coverage from industry insiders.
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Types of Insurance
Insurance is generally broken down into two separate categories. These are Personal Lines of insurance and Commercial Lines of Insurance. The names are pretty self explanatory. These lines of insurance are further broken down into a number of other categories. If you keep reading you will gain the knowledge to become well versed in insurance. This will allow you to ask the right questions of your insurance agent to ensure you get the right policy for your needs. So let us jump right in.
Commercial lines of insurance
Below is a list of the major types of insurance you should be aware of if you own a business:
- Commercial General Liability Insurance
- Occurrence and Claims Made Policies
- Business Owners Policy(BOP)
- Workers Compensation Insurance
- Commercial Property Insurance
- Commercial Auto Insurance
- Builders Risk Insurance
- Inland Marine Insurance
- Professional Liability Insurance
- Errors and Omissions
- Commercial Umbrella/ Excess Liability Coverage
- Vacant Building Insurance
- Surety Bonds
- Cyber Liability Insurance
- Employment Practices Liability Insurance (EPLI)
Commercial General Liability Insurance.
General Liability Insurance is the most basic insurance any business must get. Whether you work in the construction trade or any other type of business. You always want to be protected against situations that could cause damage to other people or their property. Without general liability insurance any claim will be a threat to your business’s financial success. If you do not have insurance any costs including judgments and legal fees will come from your pocket. General Liability Insurance provides coverage for the following:
Bodily injury and Property damage and even legal expenses that arise from accidents that damage third parties are some of the coverages you can expect from a basic General Liability policy.
Now, if your business requires extra coverage, there are some endorsements you can add to your policy to extend the coverage. These are the most common:
Additional Insured endorsements:
It is designed to include the project owner or anyone who needs to benefit from the liability coverage under your policy only during the ongoing operations.
Also known as Primary and Noncontributory Wording endorsement. This is meant to designate the primary insurance that will take effect in the first place if a claim arises. Also, it prevents other parties from requesting liability contributions from other applicable policies to pay for the arising claim.
Although it offers the same limitations and conditions, the difference is that it will offer coverage when you are done with the project.
WAIVER OF SUBROGATION
It is very common that a project owner requests this endorsement to protect themselves from any responsibility for any incident that occurs on their job-site. It prevents any insurance carrier from going after them to collect the money the insurance company paid for a claim.
Occurrence and Claims Made Policies
There are 2 types of General Liability insurance policies. They are Occurrence Policies and Claims Made Policies.
A claims made policy will offer coverage within the effective period of your policy. You can also buy retroactive coverage and/or tail coverage to extend the effective time frame, but the important fact is that you’ll only be eligible for coverage if the incident occurred and is filed during the designated window period written in your policy.
On the other hand, an occurrence policy will offer coverage if an incident that occurred during your policy period is filed even after your policy has expired. For example, if your customer or a visitor gets injured in the job-site and decides to file a claim against you a year later, even after your policy has expired, that claim would be eligible for coverage under the Occurrence Policy.
General liability is a must for any small business as it protects your investment from claims from third parties that arise from your business operations. It covers settlement, legal defense and costs and any judgments awarded up to the policy limits. Without insurance you will bear the burden of these costs.
Remember a general liability policy covers the legal costs to defend you and your business. Accidents can and do happen no matter how careful you are. Also you will have coverage even if the claims made against you are found not to be valid.
Business Owners Policy (BOP)
A Business Owners Policy, is also known as BOP for short. A BOP is a very simple concept. It is a single policy designed for small business owners that bundles together General Liability and Property Insurance coverage together in one policy. These policies usually have additional benefits such as payment for losses due to business interruption. There are also usually options for coverage for spoilage of inventory, forgery protection, crime and fidelity coverage as well.
The benefit of a BOP is that you have all your coverage with one company so you do not have multiple policies to deal with. You will also pay lower premiums than if you were to purchase these individual coverages separately.
It is however important to remember that a BOP does not provide coverage for any vehicles used in the operation of your small business. Further, it does not cover injuries to your employees as well as this requires Workers Compensation Insurance coverage. This is discussed in the next section.
Get a couple of quotes if you are going with a BOP. Since different companies include many different coverage options, usually at no additional cost, you should compare what is covered along with the cost. Some companies may include valuable coverage specific to your business at no additional or minimal cost.
Workers Compensation Insurance
Workers Compensation is a type of insurance that offers income replacement, medical benefits and rehabilitation assistance to your employees that suffered an injury as a result of their work activities or while performing their duties.
As a business owner, getting workers comp might feel like another expense but this insurance can actually be a good investment to protect your business against lawsuits if one of your employees gets injured and decides to sue you. Besides it’s important to understand that this insurance is mandatory by law and buying it might save you from big fines or even jail time. All States, except Texas, require businesses to get Workers Compensation regardless of the number of employees you have. And of course, it’s always a good idea to see what your state specifications and requirements are to avoid inconvenience.
How is the Workers Compensation Premium calculated?
The cost of a Worker’s comp. policy is normally rated according to the classification code, the experience modification and your annual payroll
1. Classification code
The Classification code or Class code, refers to a specific code used to describe the job an employee will perform within your business. These codes are generally the same around the industry but the rate will change according to the State you’re in and this rate is based on every $100 of payroll. For example, if you are in Illinois and get Workers comp for a roofing job you could pay $56 per $100 of payroll but this rate could be less if you get Workers Comp for an employee that only does clerical work. So, the class code system helps the industry determine the level of risk each job has, and of course, the higher the risk the more you pay to get it insured.
2. The experience modification
The Experience Modification Rate also known as EXPERIENCE MOD refers to your claim history the average number is 1. The actual premium is determined by multiplying this figure by the base premium. So if you have claims this number will be greater than 1 and your premium will be higher. Conversely if you have a good record the number will be less than 1 so you will pay a lower rate.
3. Your annual payroll
Payroll is the main ingredient for the premium calculation on a Workers comp policy because as you know, there is a specific rate for each $100 of your payroll. Once you get the amount of your premium you can choose to spread the payment to pay monthly in the course of a year instead of making a lump sum payment. Ask your agent to get a Payroll Provider so you can have the option to deduct your Worker’s Comp premium each payroll period.
How to lower your Premium?
The key to lower your Workers Compensation premium is “Safety”. Establishing a good Safety Policy in your business will lower the chances of injuries; especially, if part of your normal operations involve certain risks. Providing good training and getting all safety measures in place will help your business maintain a good EXPERIENCE MOD and this will help your premium go down.
So, now you know, If you want to pay a good rate for your workers compensation policy make sure you get the correct class code for your employees and stay away from claims by being safe at work.
When working with your agent on getting a worker’s comp policy make sure you get the correct class codes for your employees because when you get audited these kinds of mistakes can cost you a lot of money. Just imagine if you have your office staff rate under a roofing class code. The insurance company will come back at you and ask for the remaining amount in case you paid less or you will have a stroke when you find out you were actually overpaying.
Commercial Property Insurance
Commercial property insurance policies vary from company to company.
Low Cost Commercial Property Insurance covers losses caused by fire, lightning, wind and hail, or acts of vandalism. Additional coverage can be added if necessary. The most important coverage in a business property insurance plan are your building, office equipment, inventory and items stored outside on the premises such as fencing, sheds, or outdoor signs.
Commercial property insurance policies pay for losses based on one of two valuation methods.They will pay the replacement cost of the item or its actual cash value. Replacement cost policies pay the amount necessary to repair, replace or rebuild property on the same premises, with comparable materials and quality without deducting any amount for depreciation.
Actual cash value policies pay the cost to replace damaged or destroyed property with new property of similar style and quality, less depreciation. Typically, the premiums for policies covering property insured on an Actual Cash basis are lower.
Actual Cash Value Policies will save you money up front. You need to make the decision based on how risk averse you are in choosing between Actual Cash Value and Replacement cost. You need to remember that with Actual Cash Value policies you will need to pay significant amounts of money to repair or replace damaged or destroyed property. If you have a replacement cost policy you will only need to pay your deductible for covered claims
Commercial Auto Insurance
Many small business owners think that their personal auto insurance will cover any loss on the vehicle they use every day for personal use and work. The truth is that when a claim arises, insurance companies will open an investigation to see where you were going to and what was the purpose of your trip when using the vehicle. If they find out you were using the vehicle as part of an activity to obtain income they will deny coverage because your policy was personal and not commercial.
Another reason to have Affordable Commercial Auto Insurance is that Employees will be covered too:
This is very important if you have your employees using your vehicle to work because it will also protect them against accidents that damage others. They will be part of your policy as additional insured, so you will need to provide their information and a valid driver’s license number.
Also, if you or your employees use the company’s vehicle to transport business goods, materials or equipment, or get paid to perform a service or haul work related loads with it, a commercial auto insurance policy is what you need to make sure you are well protected in case of a lawsuit that might be filed against you in case an accident that you or your employees are held responsible for.
Hired and Non-Owned Auto Insurance is an important coverage that can be added to your Commercial Auto Policy; it can also be purchased separately later on.. So, if you rent a vehicle to provide a service or your employees use their own vehicles for work errands, you definitely need this coverage added to your policy because It will offer liability coverage in case of an accident.
If you or your employees get injured in an accident while driving the insured vehicle during business hours your Commercial Auto Insurance WILL NOT offer coverage for personal bodily injury, this claim would be filed under your Worker’s Compensation Insurance Policy. Check with your agent for more details regarding your Worker’s Comp coverage. Insurance companies are cracking down on personal vehicles used for commercial purposes, mainly because of the gig economy. A food delivery driver was recently carjacked while delivering an order. The insurance company denied the claim. The driver was left holding the bag for the amount owed on the vehicle.
Builders Risk Insurance
The policy provides coverage for homes or buildings while undergoing construction. It covers the property owners’ or contractors’ interest in materials at the job site before they are installed, construction materials in transit designated for the renovation, remodel or construction and the value of the property being constructed until it is completed. The policy may be written to cover the whole building, house or structure for new construction or the cost of Remodeling or Renovation projects.
Almost all types of commercial insurance are typically for one year terms. Builder’s risk is different as the term of the insurance can be for 3, 6 or 12 month terms.
Make sure you accurately estimate the time needed for the policy. A 6 month term is cheaper than a 12 month term. However adding an additional 6 month term will cost your more than 1 12 month term policy. It is also important that if the project is not going to be complete before the policy term expires you request an extension. It is very difficult to reinstate coverage after the policy term lapses.
Inland Marine Insurance
Don’t let the term “inland marine” confuse you. Inland Marine Insurance commonly includes coverage for the following types of property:
- Property in transit, such as contractor’s tools and supplies.
- Buildings under construction.
- Computer equipment.
- Data and accounts receivable, such as accounting software, lead-tracking data, policies, procedures, and other electronic assets.
- Mobile equipment, such as forklifts, dozers, track hoes, maintainers, loaders, etc.
- Equipment stored temporarily away from your main location.
It is essential to include tools, both expensive and inexpensive, that your construction or contracting crew takes with them when they perform a job.
Construction companies have many business assets that are not only valuable, but necessary for the business to make money and get jobs completed on time. Can you afford to replace your equipment and tools that are stolen, damaged, or lost from your own cash reserves? Also if you are financing equipment, Low cost inland marine insurance may be required. Even if it is not you should get coverage otherwise if it is lost or destroyed you will still be required to make the payments.
Professional Liability Insurance
If you are a contractor that does design-build work or construction management work you should look into getting a Professional Liability Insurance policy. This type of coverage defends contractors and building professionals as a result of construction mistakes that may occur during construction of a building project. Designing and building a structure is a complex process involving many parties, including architects, designers, engineers, building contractors, and other building specialists. It will provide coverage for losses by mistakes of these third party trades that cause a defect in construction.
Errors And Omissions insurance
Contractors Errors and Omissions Insurance, is also known as E&O insurance. This is a form of liability coverage designed to protect construction contractors from liability resulting from claims of negligence and errors in the insured’s work performed. These types of claims are not covered by your general liability insurance policy. An example would be a roof was installed for $15,000, at the time the wrong underlayment was installed after a winter storm severe leaking occurred. The general liability policy would cover the damage to the structure and contents. The E&O policy would cover the $15,000 cost to replace the roof.
Contractors’ E&O coverage should not be confused with Contractors’ Professional Liability Insurance. Contractors’ Professional Liability Insurance is for contractors involved in construction management and design-build work.
Contractor’s E&O insurance will cover faulty workmanship. This added coverage protects the value of the work you performed if it is damaged as a result of faulty workmanship.
If you are held liable, the policy would cover the cost to repair or replace any substandard work. It also covers any legal defense against those claims. With just a General Liability policy you are only covered from damages that your work causes to third party property, not your own work.
Commercial Umbrella/ Excess Liability Coverage
Are you a general contractor, artisan contractor or the owner of some other type of small business looking for liability insurance? One thing you may have overlooked is affordable umbrella insurance. All small business owners should consider a low cost Business Umbrella Liability Insurance. We live in a lawsuit happy country. No matter how conscientious and attentive you are, there is always the possibility your business will be sued. You could lose everything if a court rules against you,including your PERSONAL ASSETS like your house, savings and vehicles. This in addition to probably losing your business. Just imagine the pickle you would be in.
No one really expects a catastrophe to strike their business. But every small business is vulnerable to a major catastrophe or a huge lawsuit. Think about some of the devastating losses you’ve heard about recently and the large settlements that are awarded in courts these days. It is possible these losses could exceed your primary insurance coverage. The possibilities are mind boggling. A plumber comes in to fix a leaky pipe while soldering a fire starts. The fire ends up burning the facility to the ground. This loss could run into the millions of dollars and unless you have umbrella insurance the loss is coming out of your pocket.
Umbrella insurance is important because it covers these unlikely events. It is not expensive and in certain instances, it could actually save your business and your assets .The cost of this peace of mind insurance is astonishingly little.
Vacant Building Insurance
Having a Vacant Property is always a difficult risk to insure. Many insurance companies will not insure Vacant Buildings or Vacant Homes because of the increased risk of a loss occurring.
In most cases a standard policy will not cover losses if the property has been vacant for either 30 to 60 days. In those situations if you have a loss you would have to pay for any repairs or loss from your own pocket. This could be substantial if it is a total loss.
In addition to protecting your real estate structure, this insurance may also provide Liability Insurance Coverage to protect you from financial ruin if someone is injured on your property and sues for damages.
In many situations owners leave their property empty or vacant without understanding the provisions of their policy, and risk everything. In some policies, coverage can be dropped, at least for certain lines like vandalism, in as little as 30 days. Many homeowners that leave their house unoccupied for over 60 days don’t understand that they may have no coverage, or reduced coverage, in the event of a peril that causes a serious loss. This is true even if the policy would have covered the loss had the property been occupied.
License and Permit Bonds
Permit bonds are required by certain governmental entities to allow various types of contractors i.e. Electricians, Plumbers, Roofers etc. to apply for a permit for a construction project. In most instances when a permit is required they also generally require the contractor to meet a minimum general liability insurance requirements before they issue a contractor a permit to proceed with their construction project.
The cost of required permit bonds varies by the amount of the bond required. The typical cost of a permit bond is anywhere from $100 to $250.
License bonds are required by certain governmental entities to allow various types of contractors i.e. Electricians, Plumbers, Roofers etc. to work their chosen trade legally in that jurisdiction. In most instances when a State requires a license they also generally require the contractor to pass some type of certification to show that the contractor is competent in the basics of their trade along with any bond and insurance requirements they might require to issue a contractor a license.
The cost of State required license bonds varies by the amount of the bond required. The typical cost of a license bond is anywhere from $100 to $400. The cost of this bond varies from State to State. Another major component of the cost of the bond is the credit of the person applying for the bond. The price difference for contractors with good credit versus those with bad credit is staggering. An example is the State of Washington General Contractors bond. A contractor with good credit can obtain this bond for around $120 for the year. On the other hand a contractor with bad credit will have to pay at least $1,380 a year for the same bond.
Almost all License and Permit bonds can be issued quickly and sent out the same day through email. Some jurisdictions require live ink signatures and raised seals. These can be sent regular mail or FedEx it you need it right away
BONDS AND PERSONAL CREDIT SCORE
The first thing any underwriter checks when a new application for a bid bond crosses their desk is the credit of the owners and their spouses. If you have poor credit it makes it very difficult to become bonded. As a result of the poor economy during the last few years many smaller contractor’s credit has suffered. In many instances this was through no fault of the contractor themselves. Prime contractors and developers often went bankrupt and left small contractors holding the bag. Contractors who were able to hold on during these lean times are usually not in the greatest financial shape. Now with the improving economy they find themselves in the position to be able to get back on their feet, but only to be knocked back down again as they are unable to secure bonding because of a low credit score.
Good credit is generally interpreted as a score above 700 with no bankruptcies.
Some license and permit bonds require a credit check, specifically California and Washington. To get bid, payment and performance bonds all companies require a credit check.
It is wise to get as much credit in your business name as opposed to your personal credit. The reason for this is that your personal credit is the most important factor in obtaining a bond. When you have large credit card balances that are being used to purchase supplies or other business items it will greatly reduce your credit score. Try to build credit under the business name.
When a contractor wants to bid on construction projects that are being advertised by governmental entities that are over $25,000 there is generally a requirement that the contractor along with their bid proposal also submit a bid bond. The failure to include the bond, if required almost always results in that contractors bid being disqualified as nonconforming/non-responsive even if they submitted the lowest bid.
The bid bond also gives the owner of the project the security that the contractor submitting the bid has been vetted by a third party as to the contractor’s credit and positive work history.
The bid bond also guarantees the owner that the principal will honor its bid. The owner of the project is called the “Obligee” and may sue the contractor, the “Principal” and the surety to enforce the bond. If the principal refuses to honor its bid, the principal and surety are liable on the bond for any additional costs the owner incurs in fulfilling the contract. This usually is the difference in dollar amount between the low bid and the second low bid and if necessary the costs of having the job rebid. The amount of a bid bond is generally five to twenty percent of the bid amount. This is called the penal sum and is the upper limit on the liability under the bid bond.
PAYMENT & PERFORMANCE BONDS
In a normal transaction after a contract is awarded either through a bid process or a negotiation a Payment and Performance bond may be required. Payment and Performance bonds are two separate bonds but they almost always go together. The cost of these bonds is generally 3% of the contract price. The 3% includes both the Payment and Performance bond, so if the contract was for $100,000 the TOTAL cost of the Payment and Performance bond would be $3,000.00.
Performance bonds are guarantees by a bonding company that jobs will be completed per the specifications of the contract. This is different from insurance, as the bonding company will not simply write a check if you default on the job. If you’re unable to complete the job, the bonding company may put the job out to bid with select contractors or even complete the work themselves.
Performance bond requirements are set in place by the Miller Act for all public work contracts $100,000 and above. Bonds may also be required for private work or by a general contractor requiring it of their sub-contractors.
If claims are filed on your performance surety bond, you are responsible to pay back the bonding company.
Cyber insurance covers your business’ liability for a data breach involving private customer information, such as Social Security numbers, credit card numbers, account numbers, driver’s license numbers and health records.
There are two types of cyber liability insurance:
First-party coverage will provide coverage expenses when your systems or network are breached or your data is stolen.
Third-party coverage will provide protection when a client sues your business for failing to prevent a breach at their business that causes them a loss.
In addition, the policies cover liability arising from:
- Business interruption
- Computer fraud
- Cyber extortion
- Funds transfer loss
- Data loss or destruction
The number of States requiring mandatory notification of any of your clients/customers of a possible data breach is growing. The cost of this notification can be very expensive if you do not have insurance coverage
Employment Practices Liability Insurance (EPLI)
EPLI covers businesses against claims by workers that their legal rights as employees of the company have been violated.
A Low Cost ELPI typically provides for defense costs and damages related to various employment-related claims including allegations of Wrongful Termination, Discrimination, Workplace Harassment and Retaliation.
Lawsuits are being filed everyday by employees and employees. Some of these are just “sour grapes” complaints that have no merit when the facts are exposed. The problem is that without EPLI coverage you will end up paying these costs of defense from your own funds. Lawyers are expensive and your court win may turn out to be a major financial loss.
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