# Insurance for my business



## markdrm1 (Mar 13, 2012)

Im considering starting a roofing business in Alabama and have a lengthy list of questions. Im not going to bother you with all of them but right now im trying to figure out what kind of insurance I should have. What do you guys recommend as far as workers comp, liability etc? What am I looking at as far as cost? Im guessing all of this varies from state to state. Thanks.


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## Grumpy (Oct 29, 2008)

You NEED roofing comp and roofing liability. Sure you can cheat, you can get carpentry comp and carpentry liability. Sure it will be cheaper, but when you get buster you won't be covered. So it's better to either cheat all the way and have no insurance and be a full time scum bag or do it right and get the roofing insurance. This is not to imply that you are a scum bag, just that those who cheat are.

I can not speak for Alabama insurance but in Illinois, I know is more expensive than most of the rest of the country. I pay 42% of pay roll for WC and I pay 19% for GL. Some companies base your rates on revenue, I pay based on payroll. That's an important question to ask when getting insurance.

I wrote an article about insurance over at contractor talk. Since I no longer post over there I will post it here in the blogs section for you and provide a link shortly. It'll probably answer some of your questions.


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## markdrm1 (Mar 13, 2012)

Grumpy,

I looked for your post on contractor talk but did not find it. Is there any way you can cut and paste it to this thread? I plan on starting small so I may have to get a part time job just to pay my insurance!


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## Grumpy (Oct 29, 2008)

So you're in the market for insurance for your contracting business? It's very easy to make a mistake that will cost you thousands of dollars. You may have learned what I am about to tell you if you've bought insurance before, or maybe not. However if you've never bought business insurance this should be a must read before you sign any dotted lines.
I have purchased at least 4 insurance policies in the last 7 years so I have learned many of the tricks some insurance brokers play to tempt you with a low price. The thing about insurance is you either have it or you don't. If something happens, you've got to make sure you're covered. Don't guess, know!

When it comes to pricing business insurance, with General Liability (GL) or Workers Compensation (WC), there are some things you need to know. Your rate, or your premium, is not always based on your coverage amount. Though, coverage amounts seems to be where most contractors get hung up. While that is a factor there are some other more important variables such as your classifications. Your exclusions are also important to your premium, but more importantly what you're actually covered to do. Also knowing what your premium is based upon, either sales or payroll, is also important for determining your premium and ensuring you are charging your customers enough.

Roofing contractors by far have about the highest insurance rates, except maybe steel workers. At least this is true inIllinois. A roofing contractor will have the Workers Compensation rate of 42%. Why do I bring this up? To explain what the rate is and how it differs by trade. Some roofers I know will claim to be carpenters so they can get a rate of 25%. They may be saving money but let's pray nobody falls off the roof. It is likely they may not be covered for roofing operations.
So there is 42% and 25%, but what does that mean? Well simple, 42% of your payroll is owed to your insurance company for the coverage. If you pay an employee $30,000 in a year you will pay your insurance company $12,600 for coverage on that employee. Workers comp is almost always based on payroll, though it is important you ask your broker how they came up with their coverage numbers. 
General Liability can sometimes be based on your payroll and sometimes on your sales volume. It's important to know that when they determine your rate upfront. My last insurance policy was based on my revenue. When I was shopping around for my newest policy the numbers were Just like workers comp there are also classifications.
So why does this matter? Your estimated premium is just that, an estimate. If things go according to plan then you pay what you were estimated. If your business grew you may owe and should know about how much you owe. It's also important to know what the rates are based upon, because as you can imagine if you use employees and it's based on wages the increased premium won't be that much. However if your premium is based on wages and you use employees and you go over your estimated amount, you will end up owing quite a bit.
Some other important questions is knowing if you can multi-classify. This isn't always the case with GL, but I wouldn't be with a WC carrier that didn't allow multi tasking. So we base our estimated earnings on the highest, roofing, rate but come audit time some wages are not always spent in the roofing classification. Therefore we expect a refund for hours spent on carpentry, gutters, siding etc... If you do multi-task you have to keep exceptionally detailed time sheets detailing what type of work was being done on each job. You can not simply guesstimate.
Audit? Yes I said Audit. I am audited at least once yearly where the insurance company sends out an independent analyst to review my books and see if my forecasts were met or exceeded. This independent analyst is really the person who determines what you REALLY pay. It's very easy for us we invite him in and my book keeper will generate what ever reports he wishes. 
Did you know if you use sub contractors, even if they are insured themselves, you are still likely to pay insurance on their invoices to you? Yes I pay something like 3%. This is why I ask my subs to always invoice me for labor and materials separately. I technically don't have to pay the 3% on any materials they provide. 3% may not seem like alot, but let's say a sub does $300,000 for you in a year, you're going to pay $900. I don't know about you but $900 isn't anything worth throwing away in my book.
So let me tell you some about some games insurance brokers will pay. There are unscrupulous salesmen in every industry, not just construction and remodeling. For example, in roofing open flame is common on flat roofs, however as you can imagine it carries alot of risk. Some brokers won't even ask you if you perform this kind of work. Your premium will be lower but coverage will be excluded from your policy. If there is ever any fire damage or injury as a result from fire operations you won't be covered! The same is true for buildings over 3 stories, condominiums over 10 units and on and on goes the list of exclusions. Everyone loves a low price, but that price is ALWAYS based on something.
My first time buying insurance was awesome. I got a great deal; “Wow all those other suckers were paying 10x what I was paying!”, I thought. Come audit time my broker didn't tell me about an audit. He didn't tell me what my premium was really based on. He didn't ask me about any estimates or forecasts, he literally gave me the bare MINIMUM. I did nearly a million revenue that first full year and I paid for it HARD. I had to take an equity loan to cover the overage. Don't let this happen to you.
Now I understand how the premiums are calculated. I always ask up front so I know how to determine my pricing, and I won't be any insurance broker's sucker ever again.


I followed up with some replies.... 

Author
Grumpy10 months ago
Ahh so your broker didn't tell you either huh? Yeah the premium you pay is just a guesstimate based on numbers you may have given him or numbers he may have made up. My advice is to find out what those estimates were NOW so if you need to start saving you can do it. 
You will likely have a simple phone audit where they ask you some pretty basic numbers. If you can't answer or they don't like your answers they will request on on site audit or perhaps audit by mail. If it gets to this point have your accountant help you out, but it doesn't sound like that'll be the case if it's just you. 
What I didn't post about insurance audits is you can dispute the audit results. I had to do that on one of my audits in regards to multi classing. The auditor must have been new. I happened to be there, which I try not to. My book keeper was arguing that we multi-class. The auditor said we can't do that. I said just give him the info he needs and we'll dispute. When we got the results, I wrote a letter saying we multi class, stating we gave that info to the previous adjuster, and informed them I had copies if need be. A week later we got a letter back with the adjusted results and no harm no foul. 
I learned that trick from our first audit when they put everyone even the office staff on the roofing WC rate. For comparison purposes my WC rate for office persons is .07%, that's less than 1%. WC for a roofer is 42%. Big difference. When I got the first audit results I wanted to throw up. We worked it out, learned from it, and moved on.


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## Grumpy (Oct 29, 2008)

Insurance scams in the home improvement industry
You may have come to read this article thinking that I will speak of ways home owners scam their insurance companies, but that is not the topic of this discussion. Rather, the topic is to discuss how unqualified contractors scam their insurance to offer unrealisitc pricing. 

*Insurance is expensive*. We all know this. What you might not know is that a properly classified roofing contractor will have an insurance rate of 41% 9in Illinois). What does this mean? It simply means that in order to properly carry workman's compensation insurance 41% of payroll is paid off to an insurance company. For example if a skilled roofer is paid $20 an hour, as a skilled roofer is worth, 41% of this wage is paid to the insurance company. That is $8.20 per hour going to the insurance company per worker. If an average crew is 5 men, and an average work day 10 hours... you do the math. 

So what methods do unqualified contractors use to cheat their insurance? A simple way is to be improperly classified. For example a company may carry carpentry insurance instead of roofing insurance. Carpentry insurance carries a rate of about 27%. Therefore that same $20 an hour ROOFER would be misclassified and his unqualified boss would only be paying $5.40 per hour or a savings of almost $2 per hour or again on a 5 man crew, or a savings of approximately $100 a day. On average there are 220 working days per year, again do the math.

Another method many *liars and cheats* will use is to improperly classify their employees as sub contractors. They will then avoid paying taxes, but will also tell their employees to get their own insurance for a rate of about $350 a year. You may be thinking, that is great, and you may be thinking each employee is covered by insurance... but this is simply not true. At this price of about $350 a year the employee is telling his insurance company that he is a company and telling the insurance company to exempt himself. Therefore nobody really has insurance, all they have is pieces of paper saying they have insurance. 

When someone is exempt they are not covered. There is no insurance on that person. 

One last scam is for the company to secure insurance, but then stop paying their monthly bills. This enables them to get a generic certificate of insurance showing that they are insured until some date, usually a year form the date the insurance is activated... but since they stopped paying for the insurance the insurance has lapsed and there are really is no insurance. 

There are other tricks like having two bank accounts and purpously keeping really poor records so that when the insurance company comes to audit, and they audit at least once a year, they end up just asking for bank statements. Since there are multiple accounts only one or two accounts are shown, and usually the bulk of the money funneled through the other hidden accounts. Less money shown equals lower insurance. Again cheating! 

*Finally the most unscrupulous and underhanded method* of cheating out on insurance and taxes is by just plain paying cash. Each employee is paid cash, no taxes are with held and since their is no "pay roll" there is nothing for the insurance company to charge against, so the contractor has a rate of about $350 a year.
You might be thinking this is great for the consumer, but is is NOT! When you cheat insurance you have none. Do you know the purpose of insurance? That's right! Insurance is there just in case something goes wrong. Just think of the cut corners these cheats and cons are taking, if they are taking corners on insurance. You are probably also getting slop work. If something were to happen, you wouldn't be covered because there really is no insurance; just a worthless piece of paper. 

If some thing were to happen the claim would go to your home owners insurance, you seriously could potentially lose your property to an injured worker. Let's say everything goes smoothly during the project... Most of these companies who are cheating their insurance need to constantly be on the move not to be caught. They are changing names and phone numbers every few years. What does that mean for you? NO WARRANTY. And chances are likley something will eventually go wrong, since as I said before, these cheats and crooks are cutting corners all over. 

*What can a consumer do to protect themselves?!* 

The answer is simple but it requires due dilligence on your part. First a consumer must ALWAYS ask for a certificate of insurance shoing not only general liability but also workmans compensation. In some cases there may be two seperate certificates, and that's fine. NEXT you MUST conact the insurance companies. Make sure the policies are still in force. Also make sure the contractor is insured for what ever trade he is doing, roofing, electircal, plumbing etc... And if you are feeling really adventurous you might want to ask to be named as an ADDITIONAL INSURED on the policy. This means that if the policy is to laps you will be notified by the insurance company. 

While you are at it, some other questions you might also want to aks include licensing and a list of refrences. Many trades are licensed, some are not. City licensing is pretty basic usually only requiring only a fee to be paid. State licensing is more stringent requiring examination and bonding to ensure financial stability. 

Protect yourself hire only reputable and legitimate contractors to work on your property. Protect yourself now so that you do not suffer later and remember that often when you hire the lowest bidder you are gambling... and do you really want to gamble on your largest investment?


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## markdrm1 (Mar 13, 2012)

Wow, that's a lot to digest! I will have to read this a couple of times to grasp all of this. I sent an email to my agent asking some question but no response yet. Thanks for the info!


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## jeffroofing (Feb 18, 2012)

I was paying 48.3 per 100 dollars paid out for roofing workers comp for the minimal coverage but I upgrade to 500k protection and now i am up to 50 percent per 100. I too just sent my insurance guy a email to let me see documents with my classifications on them as well as something identify the codes.. I am located in CT USA. 
I do roofing sididing and some windows, so I am just going to verify that everythign is on the up and up. I also believe I told the insurance carry i do over 3 storys for roofing like churches etc so if that is in there i am sure that is why i am up to that amount for cost of the comp. I do not do flame or anything. If i find that in my classifications, could it save me money if i remove it? along with other things I KNOW that i won't and don't do? I rememeber you said insurance preminum are based on something , but i wonder exactl how much you can save by eliminating some things when it comes to roofing comp..

Good information by the way, good eye opener for contractors/consumers. :thumbup:


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## jeffroofing (Feb 18, 2012)

I also have drivers on my policy but i only take 1 vechicle to work which i drive that holds everything. I do not have the guys drive anything, i just do it . do you think driving makes my comp go up? I would love to be at 42 percent of payroll lol that extra 6 percent would be good towards other expenses


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