Business Owners Resource Network

March 4, 2009

Bad Insurance Costs Money.

Filed under: Business Insurance,Small Business Growth — natewatson @ 9:47 pm


 Bad insurance costs you money. More money in the long run than10111 good insurance first would have charged you.

I have a subcontractor in Shawnee, KS. He remodels houses. He doesn’t technically employ anyone; all of the people he uses are subcontractors. His plumbers, electricians, and painters, were all paid by his company to do work for him. He never checked to see if they had insurance.  What did he care?  They were subcontractors. His insurance wasn’t over them, right?  Except it was. Anyone you hire is under your workers comp insurance unless they have workers comp insurance of their own. It was a very costly mistake. At the end of the year, when he was audited, he had to pay on 250,000 in payroll he wasn’t counting because he thought that he didn’t have too. Now he knows, and now he is being back-charged. His new payroll is 250k higher. His new monthly payments are double as he pays for this year and last year at the same time.

This mistake almost bankrupted him. He got bad insurance advice from someone who didn’t know what they were doing. Oh, sure, they looked cheap, but in year two, they aren’t looking like such a good deal.

I see a lot of mistakes like this in the Workers comp area of insurance. Many companies start their business as one-person operations that don’t need workers comp. They get a cheap startup policy from an agent and go to work. When they succeed and add employees, they call up someone to do their workers comp. The problem is the agent didn’t know what they were doing, let the business owner misrepresent what he really was paying, and then, at the end of the year, when the company was audited, the company owed much more than expected.

Where did they go wrong? Most mistakes are from 2 misunderstandings:

 1. You cannot exclude someone just because they are family. If you are not the owner, you are counted in workers comp salaries.

2. You cannot get out of paying workers comp by having all of your employees as subcontractors. If they don’t have insurance, and lets face it, they probably don’t, you, as the employer, by law, have to provide their workers comp. You don’t count them, the insurance company finds out about them, and you get back charged.

I think the moral of the story is pretty obvious. Bad Insurance Costs Money. This is what happened to my client before I got him. Choose the bad insurance and found out it costs money too. So much so it almost bankrupted him. You may not see it at first, but having someone who knows what they are doing is worth more than a few extra dollars. In fact, it could save your business.

Do you have a stupid insurance guy story? I would love to hear it.


Nathan Watson, Nationwide Insurance. 913-322-3388, ext 14. 

I help you get the insurance you think you already have.


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