Setting up your business’s insurance coverage can feel like a daunting task filled with hard to understand insurance jargon that can leave the average person frustrated and confused. Insuring your company shouldn’t be that complicated. This article is here to help breakdown what you need to know about insurance by condensing the information into three parts in order to simplify your understanding of insurance and ensure that you are correctly covered.
- State Minimum and Required Coverage Level
Just like getting your vehicle insured, there are also state minimums with regards to the coverage levels for your business insurance. While each state differs, most mandated coverages are relatively low however are usually required in order to obtain a trade or contractor’s license. That said, what may be required as minimum coverage in your state will most likely be much lower than the industry standard, which should be considered when choosing insurance for your company. The industry standard is the most common coverage level which most general contractors and organizations will request from companies before signing onto a project. For Commercial General Liability, the industry standard is $1 million per claim or occurrence with $2 million in aggregate (also known as the policy period). While it is convenient to purchase just your state’s minimum coverage level in order to obtain your license, you will find it necessary to increase your policy once you start securing jobs. Not only will you have to pay more, but you will also have to do it under considerable pressure from your employer. They can even shut down the Jobsite if your company does not have an adequate insurance plan.
Added tip:
When it comes to Commercial General Liability, you should also make sure that you know the difference between a “Claims Made Policy” and an “Occurrence Policy” as described below:
- Claims-Made Policy: The claim must be made during the effective time of the insurance policy in order for it to be valid. The claim also must have occurred during the effective time of the insurance policy.
- Occurrence Policy: The claim must take place during the policy effective period, but can be reported at any time after, even if the insurance policy has expired.
- Having the Right Endorsements and Add-Ons
Aside from your regular policy, almost every insurance policy offers optional coverages that are not apart of the insurance package, however, they are required to meet the industry standard. These optional coverages can always be added on once a policy is issued, but it can complicate and potentially delay your work. Here are the most common endorsements for a Commercial General Liability Policy:
- Waiver of Subrogation
This is one of the more confusing endorsements for business owners to understand. In the simplest terms, it is an endorsement or policy add on that prevents your insurance carrier from attempting to recover the money paid out in a claim by suing a third party that could be found as negligent.
- Additional Insured Endorsement
This endorsement is used to add someone to an insurance policy who was not originally named. This is usually someone who has a vested interest in the business or operation.
- Inland Marine
This endorsement increases your company’s current coverage level. It can be used to cover tools and materials that are transported and used on job sites.
- Primary Non-Contributory Endorsement
Many people have a hard time understanding this endorsement. It refers to the verbiage used in your policy which lists the order that a claim (or loss) is worked on when it is covered by multiple policies. General contractors and organizations will use this to ensure that the contractor’s insurance policy (primary) will pay for a loss before other insurance policies (contributory) that could also be active.
- Understanding AM Best Ratings and Admitted and Non-Admitted Markets
- AM Best Rating
This is an independent US credit rating agency that focuses on insurance companies. AM Best Rating measures the financial strength of insurance companies and their ability to pay claims. It also rates bonds, notes, and securitization products. These ratings are done by grade symbols starting with A+ and ending at D. They are also organized into rating categories that begin with “Superior” and lower to “Poor.” Below is a table that will help you understand the rating system:
Best’s Financial Strength Rating
| Rating Categories | Rating Symbol |
| Superior | A+ |
| Excellent | A+ |
| Good | B+ |
| Fair | B+ |
| Marginal | C+ |
| Weak | C+ |
| Poor | D |
- Admitted Markets
Particular states may “admit” certain businesses to qualify as an insurance company. In order to be classified as admitted, an insurance company must follow particular guidelines and regulations set out by the state. Additionally, the companies also have to file their rates with the state. The biggest advantage of an admitted carrier is, should the carrier go out of business, the state is legally required to pay out your claim up to the minimum limits set by that state.
- Non-Admitted Insurance Companies
Non-admitted insurance companies do not operate under a specific state’s insurance laws or regulations. As a result, they do not have the added bonus of having their insureds’ claims paid by the state should they go bankrupt. The biggest appeal for non-admitted insurance companies is having more flexibility with their rates. It is also possible to have a non-admitted carrier that has a very good AM rating, which will give prospective clients security that they are choosing a reliable insurance company. Non-admitted markets are very useful and have an important place in the market.
These are just the top three signs we have to verify if you have the best insurance coverage for your needs; this list is by no means all-inclusive. We advise you to always do your own research and, if possible, go with an independent insurance agent that can shop around for the best policy at the best price for your company.
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