Contractors work hard to build a reputation and grow their business, but when it comes to contractors insurance, there is still misinformation swirling around that some contractors absorb and apply to their business dealings. There are a number of things that could go wrong while doing contracting work and you want to ensure that you have adequate coverage to weather any storm that could have a devastating impact on your business and finances. Here are six contractors insurance myths that are still perpetuated by the unaware.
- I am not Required to Have Workers’ Compensation
If you are a contractor with fewer than four employees, you don’t need workers’ compensation coverage. Wrong. Each state has its own workers’ compensation laws, but contractors are required to carry workers’ compensation regardless of the number of employees in their business. Without workers’ compensation coverage, you run the risk of being sued by an employee on the claim of injury caused by your negligence.
- As the Contracting Business Owner I Don’t Need Workers’ Compensation Coverage
Carrying workers’ compensation as the owner of a contracting business is wise, but excluding yourself from coverage is a big mistake. If you see excluding yourself as a way to save on construction insurance premium, you should also consider the benefits of that workers’ compensation can provide. This includes medical bills resulting from an on-the-job injury and pays lost wages. Protect yourself too.
- Deduction from My Uninsured Subs is Unnecessary with a Signed Exemption Form for Workers’ Compensation
It is important to properly deduct or withhold from uninsured subs, whether or not subs provide an exemption form instead of a certificate of insurance. It is the general contractor’s responsibility to pay workers’ compensation claims to employees of the uninsured sub, which would put the general contractor’s insurance carrier on the hook for the claim. The insurance carrier would make an insurance charge upon the audit to the general contractor. For this reason, workers’ compensation deduction from the uninsured sub is necessary, even if that sub has signed the exemption form.
- Waiting to Pay Premiums Until You Really Need Coverage is Ok.
Intentionally underestimating your projected payrolls and amounts paid for the purpose of saving on premiums is not a good move. Waiting for the results of your insurance company’s audits to determine the actual payroll can lead to bankruptcy, since significant additional premium owed at audit requires full payment and within a set period. Add that to the cost of renewing the policy and amending the policy to reflect the higher payroll figures revealed in audit. That can amount to cost that you may not be able to afford.
- I Only Need Contractors Insurance if it is a Contract Requirement
Your business may be located in a state where your contract may not be required to have insurance, except upon the request of a client. Even if that is the case, contractors insurance is a valuable asset that you could use to protect you and your business. It can protect you if your business takes a hit from a lawsuit and allow you to recover from losses associated with a claim. It provides you with peace of mind.
- I Don’t Have to Worry About Contractors Insurance When I Can Simply Transfer My Assets
While contractors insurance is another cost that you don’t want to hit your pocket books, thinking that you can transfer your assets over to your spouse if sued to avoid responsibility is misguided. Contractors with this attitude often underbid the responsible contractors, but it’s important to remember that an unfortunate event is hardly impossible. Giving your assets to your spouse to lay low when something goes wrong might be a short-term strategy, but an uncovered lawsuit would keep you worried about the consequences of its discovery.
Certain contractors insurance myths continue to be perpetuated, and if a contractor is unaware of these myths and applies them in carrying out business operations, there could be devastating consequences. Simply put, contractors insurance is a valuable asset that contractors should have to protect themselves and their business.
