What Insurance Do I Need?Newly licensed contractors are often at a disadvantage for several reasons. In order to bid larger jobs they will need to satisfy insurance requirements but starting out the cash flow has not been developed. Obtaining insurance will require down payments and monthly payments. Then there is the learning curve on handling payroll and taxes.
I talk to newly licensed contractors almost daily and understandably they have a lot of questions. One of the most common questions is "What insurance do I need?" The answer is two part. Legally the only insurance that is required is workers compensation if there are any employees. A lot of times the reply I get is "I am going to sub out" or "I am going to 1099 my guys." 1099 is the tax form number for independent contractors.
The problem with this approach is that in order for a sub contractor to be actually independent he will need to have his own work comp and provide proof to you as the contractors that hires a sub. This is usually not the way to go since you will open yourself to many issues. IRS audits and work comp claims as the two major ones. Most of the time the people I see being called independent contractors are not really definable as such using the IRS rules.
The second answer to the question of "What insurance do I need?" depends on the contracts you will be bidding. If you are going to work as a sub contractor you can be sure that the contract you sign will have insurance requirements. This is where General Liability comes in as a requirement. If you are not interested in having GL for your own reasons you will have to be interested if it is a requirement of a contract.
So usually the minimum insurance you should consider as a contractor is Workers Compensation and General Liability. Even if you have no employees it is smart to have a work comp policy. For the GL I recommend a $1,000,000 policy since the difference in cost between policies with lower limits and a 1MM policy is usually quite small. If you are trying to save money ask for a higher deductible. Pretty much any contract you sign will require $1MM limits for the GL.
You should also know that there are many possible variations in GL policy forms. Saying a policy is $1,000,000 coverage is really the smallest part of the policy. The most important part is under what circumstances will the policy actually respond to a claim. This is where the difference in policy forms comes in.
I place policies into four rough descriptions based on the quality of the form. 1) I won't sell that form 2) This one is OK 3) This one is good 4) This is the best available form.
In theory there are many things that can be requested on a GL policy. In practice only certain forms are actually available to the average contractor.
Other types of insurance you should consider are the types of policies that cover your tools and equipment. Or those that cover your materials either in your shop, in transit or being installed. If you ever handle property or equipment that belongs to another, such as an HVAC unit that a home owner purchased but hired you to install, there is special coverage for while you are handling the item before it is installed.
Floyd Sloat
Venture Insurance Services
866-726-8442