All You Ever Needed to Know About Commercial Insurance

Business loss can include employee issues, auto loss, fire, theft, customer issues, professional and even reputational loss. Without proper insurance, your business is at risk of financial loss so great it could bankrupt your company.

Keep reading to learn all you ever needed to know about contractor’s commercial insurance.

What Is Business Loss?

In general, commercial insurance is an insurance policy or series of insurance policies that protect your business from loss.

As a contractor, your business loss can be significant. The real question to ask is, “What is a business loss?”

commercial business loss

Before we can really understand commercial insurance, we must delve into the concept of business loss and its implications for your business.

There are numerous scenarios in which a contractor can experience business loss. First, inventory equipment of your business.

You have at least one commercial vehicle. You have tools, such as general handyman tools, as well as proprietary equipment which can be quite costly.

You also may have employees, which can be your most valuable asset and largest liability.

Once you have hired your first employee (in most states), it is time to obtain worker’s compensation insurance.

Injuries and fatalities may relate to automobile accidents which can occur on the way to or from a worksite, while on company time.

Each of these occurrences results in a claim against the contractor’s company.

Without proper insurance coverage, one claim for the related medical bills and loss of wages can bankrupt a contractor’s business. Insurance helps pay for these claims and ensures the resulting payout is comparatively reasonable

You are not permitted to allow your employee to begin working for you until you have this coverage in place. Accidents often happen when you are least prepared, and they are least convenient.

Therefore, expect your employee to be injured the first day on the job if you are not covered under worker’s compensation coverage.

A loss of any of these items can not only be a financial loss but can put you out of business for a period of time. Therefore, it is safe to say you cannot afford a long-term loss of your equipment.

This type of loss can bankrupt your business if you are unprotected.

Finally, your biggest potential loss is the inability to obtain work as a contractor legally.

Under most state laws, a contractor must have commercial insurance in order to obtain a license. That license number must be on all pieces of advertising.

Therefore, you may lose the ability to work if you do not carry proper insurance.

A General Overview of Commercial Insurance

An understanding of business loss means that you know that you need to mitigate damages and cover losses when you own a business.

To understand how to mitigate these damages it is important. To understand commercial insurance, how it works, and how it can help protect you and your business from business loss.

commercial overview

First, let’s discuss what commercial insurance is.

Commercial insurance is insurance that covers your business from loss. Let’s break this out to make everything clear.

There are several different coverages of commercial insurance, especially for contractors.

Many times, the coverages are under one policy, which may include riders to cover other needs of the construction business. Commercial insurance will help cover losses under the following circumstances, among others:

  • Customer Lawsuits
  • Work Accidents
  • Loss of equipment due to damage or Theft
  • Commercial automobile accidents
  • Employees Injuries
  • Property Damage

Most contractors carry a minimum of general liability, worker’s compensation, and automobile insurance. As a matter of fact, these coverages are mandated by law.

In some cases, contractors should also look at carrying coverages such as Professional Liability, Pollution Liability, Builders Risk, depending on the line of work.

Moreover, it is extremely wise for a contractor to carry above the mandated minimum coverages for any insurance. It’s important to mitigate the real potential loss that can be associated with business, as opposed to the perceived potential loss under the guidelines of the law.

Why Contractors Need Commercial Insurance

The law says that a contractor must be insured and bonded in order to maintain a license to do business.

Furthermore, the commercial contractor needs a license to do business legally in any state and cannot advertise for business without that license number printed on all materials, including business cards.

commercial equipment

Therefore, to be in business, contractors must have commercial insurance. However, legal implications are only the beginning of the reasons for having commercial insurance beyond the bare minimum.

Let’s examine why commercial insurance coverage is needed and what can happen if a contractor is uninsured or underinsured.

According to the “CMAA Seventh Annual Arcadis Global Construction Disputes Report 2017: Avoiding the Same Pitfalls,” legal disputes in 2016 in North America amounted to $21 million in aggregate losses and lasted an average of 15.6 months.

This means that insurance can literally be the difference between a company’s ability to stay in business or collapse under the financial strain of loss.

Contractors carry business risk insurance and general liability insurance to help cover these types of contractual disputes. These disagreements can cost any contractor hundreds of thousands to millions of dollars of loss, as well as attorney fees and time away from work.

Finally, a contractor tends to have a large amount of equipment.

While this equipment may not be expensive to purchase individually, as an entire business, replacement can be quite costly. Especially if it must all be replaced at one time to avoid the risk of losing too many days of work.

Business risk insurance can help mitigate the costs to replace equipment, helping the contractor get back to work in a timely manner.

The Minimum Commercial Insurance Requirements

Each state has its own minimum regarding commercial insurance coverages for contractors.

For instance, New Jersey requires contractors to carry a minimum of $500,000 per instance of general liability insurance in order to obtain a contractor’s license.

commercial minimum

In Texas, however, a contractor must carry property damage and bodily injury insurance of $400,000 per occurrence, total property and bodily injury coverage of $1,000,000 and total liability for products and completed operations of $400,000.

And yet, Ohio says you must be bonded for $25,000 and carry liability insurance with a minimum of $300,000 for damages to one person and $500,000 for one occurrence. To learn about your state minimum commercial insurance coverage requirements, click here.

As you can see, each state has its own rules and regulations that allow you to obtain a contractor license.

You can expect to need somewhere between $300,000 and $1,000,000 of general liability insurance to obtain your license. However, that is not the end of the commercial insurance requirements.

As a contractor, you may have employees.

If you are a sole proprietor, it is optional, in most states, to carry worker’s compensation insurance for yourself. But you should check with your Insurance agent regarding the laws in your state.

However, once you hire one employee, your requirements change. Depending on the state in which you are located, one employee may require you to purchase the minimum coverage of worker’s compensation insurance. The mandate would be based upon your state’s industry standards.

Worker’s compensation is based on a formula that is solely based upon proven algorithms. To learn about your state’s guidelines, check out the NFIB website for more information.

Finally, we must discuss the need for commercial auto insurance.

Personal auto insurance may or may not cover you or your personal vehicle if it is involved in an accident while on the clock for your business. If it is used for work, and that can be a grey area when a claim comes around.

Not only are commercial drivers held to a higher standard in the court of law, the payouts can also be bigger. It is important for companies to carry coverage such as hired and non-owned auto liability for these situations, and commercial auto insurance for vehicles that are owned and used by the company.

On that note, as a contractor, it is highly unlikely that you will use public transportation to get to and from your job site.

Therefore, you will need commercial auto insurance for your vehicle or vehicles that were used for work purposes under all circumstances.

The minimum coverage for these policies is, once again, related to each state’s mandatory minimum requirements. However, be advised that simply maintaining personal liability coverage on a commercial vehicle is asking for trouble.

When to Purchase Commercial Insurance for Your Contractor Business

As discussed, general liability insurance is a must-have for any contractor looking to obtain his license and start a business in any state.

Therefore, before you can officially register your business, you must purchase the minimum (at least) general liability policy your state requires for any contractor to begin operations.

commercial open

If you have the funds to do so, this would be the appropriate time to purchase above the minimum coverage for both general liability and business risk insurance.

Once you have registered your business and are ready to begin advertising, you should make sure to purchase your commercial auto policy. This helps to ensure that you are covered if you are involved in any type of automobile accident while marketing for your business or even on the road to conduct a client quote and inspection.

You do not want to be working for your business and then be caught off guard because you neglected to insure your vehicle properly. An uncovered claim this early can shut your doors before they are even opened.

Finally, once you open your business and begin marketing and bidding on jobs, it is time to insure your business overall.

This means you need to insure your equipment, your property, your place of business, and your reputation.

You should also purchase insurance you protect your data and your customer information, such as a cyber insurance policy.

Many of these coverages can be packaged together on a Commercial Package Policy, but some may fall under a professional or pollution policy that often times is a separate policy. Again this is why it is important to consult an insurance professional to make sure there are areas that leave your business exposed.

Trust a Professional

It is no secret that you are good at what you do. You would not be starting a business if you were not.

However, you are likely inexperienced at deciphering insurance and what you should and should not carry for your business. This is why an insurance professional can be your most valuable business partner when you are beginning your business.

commercial ins professional

Just like contractors, It is important to remember that not all professionals are alike, some are more experienced in specific fields than others. Don’t be afraid to ask about other clients that have that are similar to your line of work.

Just like you would not hire an excavator to put on your new roof, you do not want someone whose focus is personal insurance or Health Insurance to try and protect your construction business.

Most insurance professionals want to help their clients get the coverage they need at a price they can afford.

It is often recommended to work with an independent agent who has access to many different insurance companies, as opposed to and captive company’s agent who is locked into the products that the company offers.

When looking for an agent, look for someone who has a specialty in contractors’ insurance policies.

Ask for recommendations from your friends and colleagues. Talk to insurance professionals at networking events. It is even a great idea to speak to your professional organization about who they recommend for your commercial insurance.

Once you find the trusted person to help you with your insurance needs, tell them the truth.

When your insurance professional asks your questions, do not be embarrassed to answer truthfully. You are not the first person he or she has worked with who is just starting out, and you will not be the last.

 It is likely your professional has a slew of over-the-top stories that can put your answers to shame.

Finally, do not be afraid to ask questions or to say “no.”

You know your comfort level.

If you are beginning to cross beyond that level without a need to do so, speak up. Ask questions to make sure you understand what you are buying and what is truly covered, so you do not make assumptions along the way.

Conclusion

To review, as a contractor, you must carry certain types of insurance policies even to begin your business and obtain your license.

Most states require a minimum general liability policy to begin working.

Once you hire an employee, you must obtain worker’s compensation coverage. And, once you begin using a vehicle for work, you must make sure you carry commercial auto insurance.

That being said, it is a wise business decision to carry well above the minimum coverage and protect all of your business assets for as much as you can afford.

Otherwise, you leave yourself open to lawsuits which could bankrupt your company and possibly bankrupt you personally.

Finally, before making any commercial insurance decision, find an insurance professional you can trust.

Do not be afraid to be part of the conversation and work with your professional to make sure you are covered to a level with which you are comfortable.

Now you know the ins and outs of contractor's insurance. Taking into account everything you learned here, do you feel your business is adequately insured? 

Kernan Insurance Agency

9932 Brewster Lane

Powell, OH 43065

 
Main office: 614-764-0121
Toll free: 800-718-2663
Fax: 614-764-0310
 

Office Hours:

Monday - Friday: 7:00 AM - 5:00 PM

Weekends: By Appointment

 

Commercial Surety

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