Understanding Insurance Requirements for Contractors
Insurance is a critical aspect of running a contracting business, yet it often gets overlooked, especially by new contractors. In a recent episode of the Hammer & Grind podcast, the host delved into the intricacies of insurance requirements, audits, and the importance of having a reliable insurance agent. Here are the main points and actionable steps to ensure your business is adequately protected.
Key Takeaways
1. Types of Insurance
Contractors need various types of insurance, including:
Workers' Compensation Insurance: Covers medical expenses and lost wages for employees injured on the job.
Liability Insurance: Protects against claims of property damage or bodily injury.
Vehicle Insurance: Covers company vehicles used for business purposes.
2. Workers' Compensation Audits
Most insurance companies conduct annual audits to verify the accuracy of your workers' compensation coverage. This audit includes:
Employee Coverage: Ensuring all employees are covered.
Subcontractor Coverage: Collecting Certificates of Insurance (COIs) from all subcontractors to avoid paying their workers' comp insurance.
3. Certificates of Insurance (COIs)
A COI is a document that proves a subcontractor has the necessary insurance coverage. Key points include:
Collection: Always collect a COI before allowing a subcontractor to start work.
Renewal: Track the expiration dates of COIs and ensure they are renewed on time.
Exemptions: In some states, business owners can file for a workers' comp exemption, but this must be renewed annually.
4. Categorization of Work
Insurance costs vary based on the type of work performed. For example, roofing is considered high-risk and thus more expensive. It's crucial to:
Break Down Revenue: Categorize your revenue by the type of work to ensure accurate insurance costs.
Estimate Accurately: When starting, estimate your revenue and type of work as accurately as possible to avoid surprises during the audit.
5. Choosing the Right Insurance Agent
A good insurance agent can make a significant difference. Look for agents who:
Specialize in Commercial Insurance: Avoid agents who primarily deal with residential insurance.
Communicate Well: Ensure they explain the details and requirements clearly.
Provide Support: They should assist you during audits and help you understand your coverage needs.
Action Steps
1. Collect and Track COIs
Before Work Begins: Always collect a COI from subcontractors before they start any work.
Use a System: Implement a system to track COIs, such as Google Drive or project management software like Job Tread.
Set Reminders: Use calendar reminders to track expiration dates and ensure timely renewals.
2. Categorize and Estimate Work Accurately
Break Down Revenue: Categorize your revenue by the type of work performed to ensure accurate insurance costs.
Estimate Conservatively: When starting, estimate your revenue and type of work conservatively to avoid underestimating your insurance needs.
3. Find a Reliable Insurance Agent
Specialization: Choose an agent who specializes in commercial insurance.
Experience: Look for agents with years of experience in the field.
Support: Ensure they provide ongoing support and clear communication.
Insurance is not just a regulatory requirement; it's a crucial part of protecting your contracting business. By understanding the different types of insurance, the importance of COIs, and the need for a reliable insurance agent, you can safeguard your business against unforeseen liabilities. Implement these action steps to ensure you're adequately covered and can focus on growing your business without unnecessary risks.
Resources
Grab Brad's tell-all book: The Contractor Profit Blueprint
