Getting a bill for thousands of dollars after your insurance policy has already ended is not the kind of surprise any contractor wants. But it happens. Many contractor liability and workers’ compensation policies start with estimated numbers for things like payroll, sales, and subcontractor costs. At the end of the policy period, the insurance company checks the actual numbers. That’s called an audit.
One of the biggest problems we see involves subcontractors. Let’s say you estimated that you would use $50,000 in subcontractor labor, but business took off and you actually used $150,000. Even worse, some of those subcontractors didn’t carry their own insurance. The insurance company may treat that additional exposure differently and charge additional premium for it. That’s how a contractor can unexpectedly end up with a $5,000, $10,000, or even larger audit bill.
The best way to avoid this is to keep your insurance information up to date during the year. If payroll or subcontractor costs are growing substantially, tell us. Also, collect proof of insurance from every subcontractor before they start the job and keep those records. Trying to track down a subcontractor six months later because the auditor wants proof of coverage can be extremely difficult.
An audit shouldn’t be something you fear. It’s simply the insurance company comparing what was estimated at the beginning of the year with what actually happened. Accurate estimates, good records, and properly insured subcontractors can make the process much easier. If your business is growing faster than expected, give us a call rather than waiting until audit time.
Stay Tuned For Other Great Reads In This Month’s Newsletter
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