Insurance for Service Businesses

A guy calls you about insurance. He's friendly. He asks four questions, tells you he can bundle it, and by the end of the call you've got a policy, a monthly draft, and a folder you will never open again.

You don't know what's in it. You know it was cheaper than the other guy, and you know the commercial account you're bidding wants a certificate, so you got one.

Then something happens. Somebody backs a truck into your trailer at a hotel in Alexandria and it's gone — pumps, reels, surface cleaner, the whole rig. You call the friendly guy.

And you find out your policy pays you nothing.

Not because he lied. Because general liability covers what you break for somebody else. It has never covered what you own.

You had insurance. You just didn't have that insurance, and nobody ever walked you through the difference.

Lets do it now.

The four you actually need

General liability. This is the one that pays when you break something that isn't yours. Overspray etches fourteen storefront windows. You blow a hole through somebody's soffit. A customer walks through a wet spot and goes down. A $1 million / $2 million policy runs about $730 a year.

Commercial auto. Your truck, your trailer, on the road, for work. About $2,900 a year in Louisiana. That's high, and it's high because we live here — Louisiana is one of the most expensive states in the country for auto insurance and it isn't close.

Workers compensation. This pays when your guy gets hurt on a job. In Louisiana you need it from the first employee. There is no "just one guy" exemption here like there is in some states. On one full-time helper at $18 an hour — about $37,440 of payroll — Louisiana rates put this around $1,090 a year.

Inland marine. This is the one nobody sells you and it's the one that saves your business. It covers your gear — machines, reels, hoses, tanks, surface cleaners — on the trailer, in the shop, on the job. About $420 a year on $28,000 worth of equipment.

Four policies. $5,140 a year. About $428 a month.

Here's the number that matters

You don't pay insurance by the month. You pay it by the hour, out of jobs.

You bill about 1,320 hours a year — that's a 2,400-hour work year at the 55 percent that actually ends up billable, once you take out drive time, quotes, weather and the shop.

$5,140 divided by 1,320 hours.

$3.89.

Every hour that wand is running, three dollars and eighty-nine cents of it belongs to insurance. That is true whether it's in your price or not. If it's not in your price, it's coming out of your pay.

That's the whole idea, and it's the same move as every other cost — find it once, put it in the sheet, quit thinking about it. Your insurance bill doesn't change month to month. Do this one afternoon and you're done for the year.

The two gaps that actually kill people

Gap one: your work truck is on a personal auto policy.

This is the most common one I see, and it's the most expensive. You bought the truck personally, you insured it personally, and now it pulls a $28,000 trailer to jobs five days a week.

You have a bad wreck. The adjuster asks what you were doing. You say you were headed to a job. And a personal policy does not cover a vehicle in business use.

That's not a smaller check. That's a denied claim, on the day you needed it most, on a truck you still owe on.

Gap two: "my guy is a 1099."

I know what you're thinking. "I don't need comp, he's a subcontractor, he sends me an invoice."

Calling a man a 1099 doesn't make him one. If you tell him what time to show up, hand him your wand, put him in your truck, and pay him by the hour, he is your employee no matter what the paperwork says. He falls off a ladder at a two-story in Monroe and you find that out the hard way — with no comp, out of your own pocket, plus what the state adds for not carrying it.

The $1,090 was cheap. What comes after isn't.

What the $420 policy is actually worth

Back to the trailer that disappeared in that parking lot.

No inland marine: you eat $28,000. With inland marine: you pay your $1,000 deductible and the policy sends the rest.

A $420 policy just bought back $27,000. That single loss covers 67 years of paying that premium.

And run it the other way. Your good month leaves you about $11,900. Replacing that rig out of pocket costs you two and a half good months of profit, in the middle of a season you can't work because you have no rig to work with.

What you get sold that you don't need yet

Nobody's cheating you. It's just that the products with the best commission get pitched first.

You will get offered an umbrella policy. You will get offered cyber coverage. You'll get offered a bigger auto limit than the job requires.

None of that is wrong forever. All of it is wrong before you have inland marine on a $28,000 rig and comp on the man holding the second wand. Cover the thing that ends your business first. Then buy the extras.

And ask one question on every call, about every policy: "What does this pay for, and what does it not pay for?" Make him answer both halves. Write it down. If he can't answer the second half in plain English, that's your answer.

The stakes

Here's the backend nobody talks about. Insurance is not about you being careful. You are careful. You've been doing this for years and you've never blown out a window.

Insurance is about the day something happens that you did not cause and cannot fix, and whether the business your family eats from is still standing the week after.

The rig gone in September, with no coverage, isn't a bad month. It's a truck note you still owe on a business that can't work, a helper who has to go find another job, and a season you sit out.

Most accounting firms won't tell you any of this. Your insurance shows up on your return as one deductible line and nobody ever asks if the coverage matches what you own. They are not in your corner, they are in your wallet. I don't sell insurance either — I just know what it costs you when the coverage and the business don't match.

Recap

• General liability pays for what you break. It does not cover your own gear.

• Inland marine covers your gear. About $420 a year on $28,000 of equipment.

• Louisiana requires workers comp from your first employee. Calling him a 1099 doesn't change it.

• A work truck on a personal auto policy is a denied claim waiting to happen.

• All four policies run about $5,140 a year — $3.89 of every billable hour. Put it in the price.