Here’s What You Need to Know About Insurance for Your Painting Company
I recently heard of a contractor that had a generator stolen from his job site. The question was asked; will his insurance cover the loss? Well, will it?
My name is Scott Lollar, and I’m a DYB coach and I want to talk to you today about the options you have to insure your company against everything from damaging someone’s property to yes, having equipment stolen from a job site.
Insurance can be challenging to understand, both what you need and what it will cost you.
There are many classifications, codes and reporting agencies. Insurance is something you hope you never use but if you need it, you better have the proper coverage.
So, the first task is to find an insurance professional that has the expertise in construction insurance.
Not every insurance broker even offers the insurance you need, but more importantly, some insurance agents have more experience in consumer lines like auto and home.
So, even though they might be capable of writing your business policies, I find that an agent experienced in Business Insurance has an advantage, so you can get the right coverage and that the agent is available should you ever need to file a claim.
I have to highlight Federated Insurance. Federated only writes business insurance and I find that they have a very competitive quote and their agents are unmatched in my experience.
They know their industry and also know a lot about yours. So I’d always include them when you’re requesting proposals.
Now, let’s look at some of the coverages you might consider. The most basic and foundational coverage is General Liability.
This is the most standard coverage and many small or entry level contractors that say they’re insured often only have this coverage.
General liability covers any claims or losses due to any damage or injury to a third party as a result of your work.
This could be damage done by anyone employed by your company, to anything on a job site like a furniture or a car.
I once saw an inexperienced painter, not mine, lose control of an extension ladder and drop it on the top of the minivan.
It also would cover medical costs if the customer or any other third party is injured due to your work.
It will not cover your employees or your assets. You can purchase policies with limits that match your exposure and are paid based on your annual projected revenue.
First, there is a rating system that tracks other businesses like yours and comes up with a rate that is based on historical loss rate of other contractors in your industry.
There is a multiplier and outcomes your annual rate or cost. There are also different deductible amounts you can select for these policies.
So, if you have a great cash flow you could insure the first, say $10,000 of losses and your rate would be lower because the insurance company might determine in your industry the claims over that threshold are infrequent.
I will say that increasing deductibles do not typically save you a lot on premiums, but if you happen to have a lot of smaller frivolous claims, you might consider self-paying some of these to protect your long-term rate.
So if you work on multi-million dollar houses, a $500,000 policy limit might not be enough for the work you do.
Typical policies are between $500,000 and a million dollars, especially for residential contractors.
There are also different deductible amounts and you can select for these policies. If you do commercial work, these limits will need to be much higher to cover your risk of loss.
Most commercial clients will tell you the limits required to work on their properties and will require a certificate of insurance providing these limits.
In order to insure your employees for lost wages, medical expenses and disability resulting from an accident while working for your company where they sustained an injury, you will need Workman’s Compensation Insurance.
This insurance is the most-costly of your policies and it is billed based on your estimated payroll for the year.
Similar to the liability rating, Workman’s Compensation has a bureau that collects and reports data on premiums and claims called the National Council on Compensation Insurance or NCCI.
NCCI is owned by the insurance companies to gather data and determine modifications and classifications in order to determine risk levels and premiums for insurance companies to use when quoting Work Comp. policies.
NCCI performs this role on behalf of the insurance companies in 36 of the 50 states.
14 states either have their own reporting bureaus or have a state-run Work Comp. program.
The primary report that they create, that affects your company is the experience modification rate.
An experienced mod is a determination of your claims and premium history compared to the industry you are in.
The average of the loss experience in the industry is 1. So you’ll pay more or get a credit based on your Work Comp. claims history or mod rate.
The criteria for determining this rate is simply to gauge the future chances of risk, based on the past cost of claims by your company.
So, below 1 you’ll see companies offer you credit based on your low mod or if over one, you’ll see a higher cost of insurance.
In addition, there are a couple of benchmarks required in order for you to get an experience modification. That’s right… Experience.
In Illinois, a company needs $3,000 of premium, per year for 3 consecutive years or $10,000 of premium in any one of the previous 3 years to get an experienced mod.
Each state can be different in the amount of premium and timeframe so find out yours in your state.
So those that are new to the business or have never had a Work Comp. insurance policy will get dinged until they can get an experienced mod because the insurance industry does not know if you are a high or low risk.
Now at this point, I want to talk about the difference in estimated and actual premium.
When you request a quote and go through underwriting, you are stating what you expect to have in the next 12 months in both revenue and payroll.
This will be the estimated amount of premium that you will pay.
After the 12 months, the insurance company will do an audit of your accounting file and will bill you for what you actually should have paid.
If you’ve paid too little, then it seems like you almost always do, they will bill you for your shortfall.
This is called an Audit Premium. This additional money you can owe can be a killer.
I have seen contractors owe $10,000, $20,000 and $30,000. And it can be a financial disaster.
You should be tracking monthly what your actual is to your estimated and if you have underestimated for the month, I would take the money and put it into a separate savings account.
This will ensure that when your audit is complete, you will have money set aside to pay the bill without a crisis for your company.
I also want to address those that use subcontractors to perform their work. Subcontractors need their own coverage and you will need a Certificate of Insurance, a COI for your audit.
If they do not have coverage, your insurance company will add that premium to your audit.
Make sure you have proof of full coverage before you ever hire them to do any work for you.
Of course, there’s Auto Insurance, to cover your company vehicles.
It is important to make sure you ensure all of the vehicles that are primarily a business vehicle, on a business policy.
Sometimes owners have a vehicle that they ensure personally because it’s usually cheaper, but use it for work.
You need to discuss this with an insurance professional, to make sure there is proper coverage to shield you personally from any exposure should you have an accident.
At this point, it is important to look at an umbrella policy, instead of raising individual limits on your policy, an umbrella policy can raise your limits on any one occurrence in several policies where you have liability, specifical liability in auto and if written properly, can sit over parts of Work Comp.
Talk to your insurance broker about the details of this policy. But, it is an inexpensive way to get more coverage in several places.
Moving on, how about insuring your tools and equipment?
There is coverage for that, it is called Inland Marine Insurance and it covers your equipment wherever it is; on a job site, on a truck or in your shop.
There are limits that you need to determine as well as deductibles, so you can determine what makes sense for your business.
And yes, this is what would have been required to pay for the replacement of the generator in my example. Without this insurance, you have no coverage.
A less common insurance is Errors & Omission.
This coverage is a professional liability insurance that covers you, in case there is a failure due to inadequate work.
This is less common for painters, but you can ask about what it would cover and the cost. It typically is not an expensive item.
In addition to these common policies, there is also pollution coverage that might protect you in case of contamination to the environment due to say paint runoff or lead during the course of your work.
Find a good broker which I am not, and look at all the options to see which policies are best for you.
They will help you determine what the proper coverages are and to manage your risk at each point in your journey, and you can determine the amount of risk you can tolerate and how much it will cost you for the peace of mind to know you are covered.
I hope this is helpful, and as always if I can help you in any way build your business. I’m here to help so if I can serve you in any way, email me at firstname.lastname@example.org. Till next time.