6 Deadly Mistakes Contractors Make When Buying General Liability Insurance

Mistake 1 – Not realizing the true risk and consequences of a loss

Most contractors believe they will never have a claim and therefore do not value insurance. They think insurance is simply a business cost they must bear in order to get certain jobs. In fact, many contractors will cancel their insurance once a job is done to save money. Few ever read the policy and as a result, they are caught off guard when a claim is denied and they are exposed to massive losses that usually end up with the contractor filing bankruptcy. Ignorance is costly! Read your policy and ask questions.

Mistake 2 – Buying the wrong policy

Contractors general liability insurance is not standardized. Every insurance company offers different terms that can seriously impact the protection you get. As a general rule, the cheaper the policy, the less coverage. Ask your broker to explain the differences when you get quotes with different prices.

Mistake 3 – Ignoring the exclusions listed in the policy

Simply put, and exclusion is something that is not covered. If you are a general contractor who builds new homes and the policy excludes new construction, you have no coverage, even if you pay the premiums! If you are a plumber and your policy excludes water damage, who pays when your work causes a kitchen leak? If you paint building exteriors and the wind blows the pain onto 50 cars in the parking lot, who pays if there is an overspray exclusion? YOU DO!

Mistake 4 – Choosing the wrong broker or agent

Insurance is a very broad industry. Imagine trying to stay up to date on coverages and exclusions for every type of business. It’s just not possible. Choose a broker with extensive experience in ensuring construction and the trades. Your broker can give you insights to structure the right coverage and also suggest smart ways to save money.

Mistake 5 – Failing to make sure your subcontractors are insured

Most insurance companies require that your subcontractors carry limits of liability insurance equal or greater than your own, that you be additionally insured on their policy, and that your contract with the sub contain an indemnification/hold harmless clause. A good broker can help you determine if your subs are in compliance. If you fail to do this, you can be opening up yourself for a huge liability exposure in the event of an accident.

Mistake 6 – Switching insurance constantly

If you have a habit of switching insurance companies every year you may be creating more exposure and limiting your ability to generate premium discounts. Most insurance companies reward claim free accounts by reducing rates once the account has been with them a few years. This is very true with larger accounts. If you switch all the time, you never have the opportunity to generate these credits. Also, by switching constantly, you increase your exposure to claims denial from prior insurers depending on the language of your policy.

Explaining The Contractor License Bond

A Contractor License Bond is an important tool that is necessary to secure a business venture, especially those in the area of construction.

When we speak of construction, we are talking about a real deal business that involves a lot of resources, especially manpower and money. Indeed, it is such a venture that has so much at stake because so much can be gained and so much can be lost.

One of the things that are most critical for a construction business is the contractor. Many consider that the contractors make up the muscle and the bones of any construction business. Without them, the business is literally dead. Basically, the workers that you employ in your business are contractors, and they play specific roles which are critical to keeping the business going.

Indeed, they play important roles that no other contractor or worker can do. In other words, they have specialized in the work that they do, and nobody else can do it more efficiently. Furthermore, what he does is critical because without it, the company would not be able to run. After all, every single contractor is a crucial component in a machinery. Therefore, if a contractor backs out of his work, the entire project is affected; if a contractor backs out, the entire operation can be gravely paralyzed.

Basically, there are no definite laws which can hold contractors liable when they back out of something. The best way, then to secure oneself from contractors backing out is through the Contractor License Bond. This particular bond is something that will keep the contractors glued to the project and the employer in the entire duration of the project. The Contractor License Bond is really important because it contains a collateral which can somehow discourage the contractors from withdrawing from a contract that he has already signed on.

In the United States, contractors must have with them several kinds of surety bonds. Nine out of ten states in the US have certain kinds of bonding requirements that are asked by each state government before that contractor will be given the license to operate. If you apply to become a contractor in that specific state, you must also make sure that you submit all necessary data and papers for your license bond. Without this license bond, you will not be able to legitimately operate in any state.

It must also be sufficiently understood that the requirements vary from one state to another. Although these variations are only ‘skin deep,’ it is crucial to identify all of them because they all make up the essential components. Furthermore, the states also vary in the minimum amount which needs to be deposited. Basically, most states allow a minimum of $ 12,000 before an applicant can be approved. But, to be safe as to the exact amount, it is suggested that you check with authorities because, as we have already mentioned, there are some variations.

If for example, a certain contractor fails to finish a certain project, his surety company will pay the employers the amount that they have agreed which is necessary for the hiring of the new contractor. This Contractor License Bond, then, is beneficial not only to the contractor but the employer as well.…