Common Insurance Problems

Insurance can help mitigate expenses when there is a major problem or accident. Veteran State Farm Agent Ted Heaton III shares some of the most common insurance issues that can arise for small business owners:

NOT KNOWING THE RISKS THAT CAN SHUT DOWN YOUR BUSINESS

Know the issues that will shut your business down and at least get proposals to cover those risks. New business owners should take a few minutes to write down a list of possible disasters which could shut down their business. Take that list when you meet with your insurance agent to see if there is coverage available for these things and what the cost is. There may not be some coverage for some of the items but there could be for others and at a reasonable premium. Not knowing or not asking is putting too much faith in someone else.

SUBCONTRACTORS

It is important to point out that different insurance providers view subcontractors differently. Some may only care if the subs are 1099, while others may get more specific and ask questions about your relationship with the subs. Some providers may go by the IRS definition of subcontractors/employees to determine the sub’s status. The sub’s relationship with you could mean that, 1099 or not, they may be considered employees for insurance premium calculation purposes.

LET’S BOIL THIS DOWN AS SIMPLY AS POSSIBLE:

• It is important to understand that it is the business owner’s responsibility to honestly communicate with their insurance provider about relationships with those they consider subcontractors. Should they fail to do so, it is within the insurance provider’s right to charge a premium for those “subs.”

• If you have subcontractors, it is considered a best practice to require them to provide a Certificate of Insurance with all policies listed and sent to you from their insurance provider. I suggest you not accept any certificate that is not directly from their provider to protect yourself.

• If you choose not to require your subs to carry insurance, please go through the steps to establish the subcontractor relationship by completing and filing your state’s workforce commission forms with the sub. This will protect you if the sub or sub’s employees are hurt on the job and should suffice with your insurance carrier to avoid you being charged on your workers’ compensation policy for the sub or sub’s employees. For any liability policies, you will need to visit with your insurance provider to understand what an uninsured sub will do to your premium.

Too many times a business owner does not properly protect themselves because they don’t want to cause problems with their friends who work for them or subcontract for them. This applies to any small business owner in any line of business. If the sub messes something up or gets hurt, it’s the business owner that is most likely liable to take care of the problem on a legal basis. The most critical thing to remember is that this is business and you need to protect yourself.

Finally, remember that many policies for small business owners are auditable policies, which means the initial policy is set up using estimates for payroll, job classifications and gross receipts. Then, at the end of the policy year, the insurance company performs an audit to determine the real figures for which to base the premium. This could result in a large amount of additional premium being due. A huge mistake on the business owner’s part would be to not include uninsured subs or not to file the appropriate forms which could cause a major problem for the business owner. This entire issue can cause major grief, stress and economic disaster if not handled promptly and correctly.

With clients all over Texas, Ted Heaton III is an experienced insurance agent with nearly 35 years experience handling a wide variety of insurance needs while providing hands-on customer service. He has several State Farm honors including Lifetime President’s Club and is a nine time Trophy Winner. For more information, visit www.tedrocks.net.

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