The Tale of Two Insurance Charges: General Contractors and Subcontractors
A general contractor and a client once said “you must be getting a pretty sweet deal since general contractors and subcontractors have to buy insurance. They buy insurance twice for the same job; you get paid twice if both are clients”. What a great observation. It sure seems like it from an outside perspective. But is this really the case?
Without insurance a subcontractor’s work for a job will carry over to the general contractor’s insurance policy/audit. Why? Because if that subcontractor has an accident, the general contractor’s insurance will pay for that claim.
What if the subcontractor doesn’t cause an accident? The general contractor shouldn’t have to pay for the insurance than right? It may appear like that, however, it’s not the case. Sure it doesn’t seem fair. Well the insurance carrier puts it’s money on the line to resolve a covered claim with its cash so the general contractor should have to pay for its share.
All insurance policies are an uneven exchange of money. Insured’s pay a small amount of money in the form of premiums in exchange for the promise for the insurance carrier to pay an undetermined amount (up to the max limits on the policy) for a claim. This includes monies for the defense in a lawsuit. Lawyers are expensive. However unfair it may seem the insurance companies are there to pay claims and they want their money.
Are There Really Two Charges?
So back to the original question. Is insurance being charged twice for the same job? Well yes and no. Yes, because both parties need to carry insurance. Each party or insured has a policy that protects themselves and no one else. So at the same time no. The rate being charged is a big difference between the two.
The subcontractor is charged the general liability and the workers compensation rate of their trade. The general contractor doesn’t have to provide workers compensation to that subcontractor so it only has exposure to general liability. The general liability rate is a subcontracted rate. A subcontracted rate is a small fraction of the total subcontracted cost. The general contractor pays for protection if the sub messes up. Cause when an accident happens – everyone is going to get sued. The threat of lawsuits always exists but as a general contractor they are removed from the threat at some level. Hence the general liability rate/sub cost is less than the subcontractor itself. So if a subcontractor doesn’t have insurance, the general contractor or individual/company/whatever hires the subcontractor have that exposure to be sued or called into a suit. The insurance company always wants their money.
Independent Insurance Agents
Whether you are a general contractor, subcontractor, or hiring a contractor for job the independent insurance agents at Konen Insurance can help you determine the ins and outs of your insurance policy. Since we are independent, our agents can review your policy and determine if there is a better fit at a different carrier or if you have the best policy around. Contact us today and let us know how we can help!