Contractor bonds are guarantees of work to be provided to a certain standard. You will often see companies say “insured and bonded” which means they have such a good reputation that an insurance company was willing to offer the guarantee of their work.
Contractor bonds are hard to get for new businesses since insurance companies like to see a track record of your work that can be verified. Most large commercial jobs will often require their contractors to be bonded.
Bonds will be paid out by the insurance company if the contractor was unable to finish the work that was outlined in their contract or if the work was performed at an unsatisfactory level.
If you perform commercial work, you will most likely be asked to provide a certificate of liability or “cert”. This is a summary of your coverage and limits and has to be created new each time a new customer requests and after each policy renews.
Insurance premiums or the cost of insurance varies depending on size of the company, how prone your industry is to insurance claims, total cost of property, etc.
To make it easy, a contractor that is starting a new business will most likely get a BOP which is an average cost of $1,200/year).
Usually the full payment of your premium is due upfront but you can work with finance companies to spread that cost over a year but you will pay interest.
For new or small businesses, insurance companies such as Nationwide, Travelers, Hartford and others have online quoting that make it easy and inexpensive to purchase BOP’s or and other coverages. As you grow, it’s better to use an insurance broker that can help find coverages that include more risks that will be paid out if there is a loss, they can help manager safety so you are OSHA compliant, they can help get claims paid or fight for you, and be your advocate all around to make sure you are getting the best of everything.
This only applies if your insurance policy has an audit clause. Only General Liability and Workers’ Compensation have audits. This means that at the end of the policy year, the insurance company wants proof of your revenue and payroll for the policy year. Since the cost of the policies is based on what your expected revenue and payroll, they want to make sure that you paid the correct amount. This can be good or bad depending on if you overstated or understated these when getting your insurance quote.
As you grow and no longer qualify for a BOP, you will have more options for insurance carriers and you will purchase your coverage as an individual coverage, not a packaged policy. This means that each coverage will be analyzed separately by underwriters. Certain insurance companies do not like to insure/cover contractors that do any type of residential work because residential work has a history of high claims.
Insurance carriers are the companies that write the coverage, decide the premium, and actually cover you in case of a loss. Many insurance companies only allow you to purchase their insurance products from an insurance broker/agent. However, some insurance companies allow companies to go directly to them to purchase their insurance products. For new or small business contractors, you are able to go directly to the insurance companies websites and get quotes. As you outgrow the revenue threshold of those direct companies, you will have to use an insurance broker to find the best insurance for you.
Insurance brokers/agents have access to several different insurance companies. Once you are large enough, you will want to ask several different insurance brokers to find insurance for you since some of them have access to certain insurance companies that other brokers do not have access to. Be careful about which insurance brokers you work with because some of the ability to help with OSHA, claims, safety, and other aspects that can help decrease your insurance premiums while other brokers are just there to make money from selling you an insurance policy.
For new or small business contractors, there are several companies that offer online quoting and have some of the best coverages available. Nationwide is the largest carrier for contractor insurance. Our other recommendations are The Hartford, Next Insurance, and Thimble.