Quick/Easy Guide to Contractors Insurance


It is easy to buy. After a four minute conversation with an insurance broker, you'll be far down the road to having your own policy.
It is easy to control its cost. Because the rate is based on your payroll figures.
It is easy to factor in the cost of Work Comp into your bid.

What do I have to do to Start Coverage?

Complete the Application on Line here.
You will be contacted by e-mail, fax, or phone with the price quote.
You will be asked to confirm or complete basic facts about your business on an application. You must sign it and return the application with your down payment (which you will see on the price quote we send to you.)
Mail or Fed-Ex your signed application and payment to us.
We will automatically put your coverage in force soon after we receive the above items from you. (We can delay the start of coverage IF you send a note asking so.)
The rates you should be most interested in are the amount per $100 of payroll of each class. That is how work comp rates are quoted.

Policies are written for one full year. So if you think you won't be hiring any employees for the rest of the policy period, there will be no extra charges added for payroll beyond the minimum premium as stated in the policy.

The final premium is based on your final payroll figures. The number of employees is not important. Many contractors, like roofers, have seasonal busy periods, then times when there is less of a need for employees. At the policy conclusion you'll pay the same for having one regular employee when the payroll comes to $10,000, or if you have no payroll until the last day then hire thirty guys for one day and that day's payroll comes to $10,000. (Assuming everything else is similar.)

You must respond to each company request for a report of payroll.

If you do not:
The company will estimate an extremely high payroll figure for you.
Bill you for their estimate of payroll-based workers' compensation premium.
Cancel your policy mid-term for "Non Compliance" with the terms of the policy.

The premium quoted to you is for an annual policy, but it is only an estimate. Look, first, at the rate being charged per classification (or vocation) like roofing, finish carpentry, plumbing, etc. To fairly compare different proposals the total premium is based on your estimate of total payroll. So the estimated total is nothing more than a guess of what your final bill might look like.

Rates are stated for each separate vocational class. The rate can change dramatically if your employees are paid more than a certain rate (usually around $19 -$21 per hour.)Sometimes payroll can be structured to take this into account.

The best time to change to a different company is at its anniversary date, the expiration date shown on the policy. It is a complicated and costly procedure to properly cancel a policy in the middle of its annual term.

Every year you should request a loss analysis statement to substantiate your record to any possible new insurer. It is an essential part of good record-keeping. The longer you maintain a record of few or no losses (without a gap of time being uninsured) you will find lower and lower workers compensation premiums being offered to you. The companies look at those numbers very closely. Look to see if you qualify for a safety group. Most carriers have special programs for certain classes of workers.

How to Pick-Up Guys by Home Depot. The competition is tough. Insurance cuts right into your profits. What about "Day Laborers" that you just pay cash at the end of the day?
Stiff fines and penalties are levied by the government if you are caught. So the only answer
Check their papers to make certain they are "legal". If you can "tell" who is and isn't, so can an inspector if he comes onto the job site.
Put them on the payroll and pay the payroll taxes. Even if it only for one day!
Look for a labor pool in your area where they take care of the taxes and such expenses. This releases you from the filing requirements of employment taxes.

You wouldn't be reading this right now if you were not concerned with insuring yourself against the chance that you wind up on the wrong end of a lawsuit. Remember, a "day laborer" can put in a claim against your Workers Comp...even if you don't have the insurance!! Attorneys advertise to find these guys and, after the dust settles, you could end up working for your "day laborer".

If you leave one insurer without full payment of the premium, other companies may decide not to insure you. They can find this information easily.

There is no classification for people who "do a little of everything". Some companies offer a classification called construction clean-up. Other companies may ask you to break down how much electrical, carpentry, janitorial, or other specific duties they do.


Limit of liability you must have to satisfy State law is sometimes regulated by vehicle weight. If the gross weight exceeds 10,000 lbs then you must carry at least $750,000 of coverage per occurrence in the Western States.

A company prefers (or may insist) that you carry commercial (rather than personal) coverage on a vehicle, especially if any of the following is true:
The vehicle is EVER driven by employees.
You have signs on the vehicle
You EVER have an employee in the vehicle.
You require a certificate of insurance showing that you have commercial coverage for your vehicle.
The primary use of the vehicle is for commercial purposes.
The vehicle is not normally used as a personal vehicle (e.g. a dump truck)
The vehicle is very heavy and not considered a personal or recreational vehicle.

Never have more than one company insure your vehicles at any moment. If you do you lose coverages that might have otherwise apply. Automatic newly acquired vehicle coverage is one thing you lose. Also the deductibles from both companies are added together before paying you on any covered loss.

Each vehicle should have the exact same limit of LIABILITY coverage. Comprehensive and Collision Coverage's can vary as much as you wish. Coverage can be purchased as split or combined limit for the Liability Section of a Policy.

If the limit is split it usually follows one of these formats;

15/30/5, 15/30/10, 25/50/25, 50/100/25, 50/100/50, 100/300/25, 100/300/50, 250/500/100.

Each of these numbers are units of a thousand dollars, so the first one reads $15,000 / $30,000 / $5,000. Limits are usually abbreviated like this by insurance brokers.

The first of the three numbers means how much the insurance company might pay out to ONE PERSON.


The third number indicates the amount of PROPERTY DAMAGE the company might pay in an accident. Property is anything other than people. Several examples are vehicles owned by others, livestock, tools, clothing, etc.

Why Do You Need Commercial Vehicle Coverage? It will pay your legal liability if you hurt someone or damaged/destroyed some of their property with your commercial vehicle.

Other Limits of Liability Coverage can be shown as Single Limit (or Combined Single Limit) Coverage. Limits are shown like these:

100,000 300,000 500,000 1,000,000 2,000,000 5,000,000

Which is better, Split Limit or Combined Single Limit? Some people prefer the combined limit because an accident could be a case of your liability for only damaged property, or only bodily injury, but just to one person. You only have one limit (not three) to be concerned with. Split limit coverage is usually cheaper to purchase.

UM is a common abbreviation for Uninsured Motorists Coverage. It will pay to you and passengers in your car, for medical injuries and other associated financial losses in the event any of you are injured, the accident was the fault of another and that person was "hit and run" or just had no insurance.

Comprehensive An insurance term to mean just about anything except a crash (and that would be collision coverage). It includes potential losses like falling aircraft, flood, theft of the car, vandalism...It is a very comprehensive list.

Collision Losses under this section of your policy refers to damage to your vehicle regardless of whose fault it is. Unless you go through the other party's insurance you must pay your deductible regardless whose fault the accident was. You may get it reimbursed from your company, but if it was the fault of another and he had insurance, you probably would do better to go directly through his insurance company.


While it is important to have liability insurance, there is no legal amount of coverage you must have to operate within the legal guidelines of your license as a contractor. If you do residential work your customers are less likely to ask for proof of insurance than if you deal with more savvy commercial clients.

No penalty for underestimating at the time your estimated premium is quoted. You'll pay based on the minimum premium stated when you buy the policy, increased by payroll or gross receipts you report at each audit period.

The annual premium can be based on either payroll or gross receipts. If the premium is based on payroll the company will consider any payroll you have pay to a payroll service. If your rate is based on gross receipts the company considers a total of everything, including subcontracted costs, material, etc. The final price is subject to audit. The company can readjust the final price if your gross receipts or payroll have changed from your initial estimate.

Most common types of coverage written in the Western States are

FULL OCCURRENCE Under the full occurrence form you have coverage for claims which occur during the policy coverage period yet may not be discovered for years later.
MODIFIED OCCURRENCE, and CLAIMS MADE. Under Claims Made, the policy will cover you for claims reported during the specified time limit defined in the policy. Usually the policy will exclude coverage for events which occurred prior to policy inception. You have a limited time after the conclusion of the policy to purchase "tail-on" coverage which will extend the reporting period for another year.


The first step requires you to complete a lengthy questionnaire.
Anticipate a couple of weeks for final approval, after you've answered all the questions.
Approval is based on your credit history, equity you have in improved real estate in the Western States, especially your home.
The closer the first bid bond amount is to the sum of your assets, the more likely the bond will be issued for you.
After the first bond has been satisfactorily completed, the next bond will be easier and, usually the company will be willing to cover a higher amount.
The amount of bond required can often be negotiated. EXAMPLE: Even though a contract may be for $200,000, contractors are paid as certain stages are completed. Sometimes they might accept a $50,000 bond instead of the full $200,000.


If a claim against your bond is paid, it will be both expensive and difficult for you to obtain future coverage for at least three years, whether you repay the bond company or not.

While almost any premium can be financed, the highest percentage of finance charge is assessed for the smallest balances to be set up into payments.

Do not delay in advising your agent or company of a potential claim. If you wait too long, you violate terms of your policy and may be denied coverage. If you begin to pay for some of the loss, or sign any agreement accepting the responsibility for the loss, you cannot obligate the insurer to pay for the loss. Don't start paying for a claim unless you are certain that you can handle the claim to its final conclusion. Usually you won't be reimbursed for any money you paid to the claimant.

Definition of Some Insurance Terms can be found through this link to another page on our web site.

Disclaimer: This a broad, general outline, only covering partial issues and does not address any specific policy or coverage. Read your policy for specific terms, of course, or check with your broker, attorney, or other qualified consul to determine what may be applicable to you.

 ©2005 Commercial Specialists Insurance Services. All rights reserved. 
License # 0D80851