Entrepreneurship & Small Business

Carrying insurance as a Corporation - What are the costs and who sells this?

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  • Apr 19th, 2019 8:23 am
[OP]
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Carrying insurance as a Corporation - What are the costs and who sells this?

I am an IT Consultant and am looking to Incorporate. The Agency that I am getting a contract with stated that I need to carry a minimum of $500K liability insurance and have them named on the certificate as the placement agency. Could you let me know how much this costs as well as where can I get this insurance from?

Thanks
Last edited by hightech on Apr 16th, 2019 6:30 am, edited 2 times in total.
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Find out what specifically your “agency” wants you to have, and then pick up the phone and call some insurance brokers.

C
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CNeufeld wrote:
Apr 16th, 2019 1:04 am
Find out what specifically your “agency” wants you to have, and then pick up the phone and call some insurance brokers.

C
According to the contract:

Certificate of Insurance

a. “XXXX” must be named on the certificate as the placement agency;

b. You must obtain a minimum of $500,000 in liability coverage;

c. The coverage must be active from the day you start your contract and the coverage must extend for the full duration of the assignment;

d. You are free to choose any provider you deem suitable;

e. You need insurance because as an independent contractor, you are operating under your own business and a business needs insurance;

f. Many of our contractors choose to use ProLink. We have no financial incentive to recommend ProLink, but through our research, we’ve found that they are a cost effective provider at about $30 per month
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markham
hightech wrote:
Apr 16th, 2019 6:34 am
According to the contract:

Certificate of Insurance

a. “XXXX” must be named on the certificate as the placement agency;

b. You must obtain a minimum of $500,000 in liability coverage;

c. The coverage must be active from the day you start your contract and the coverage must extend for the full duration of the assignment;

d. You are free to choose any provider you deem suitable;

e. You need insurance because as an independent contractor, you are operating under your own business and a business needs insurance;

f. Many of our contractors choose to use ProLink. We have no financial incentive to recommend ProLink, but through our research, we’ve found that they are a cost effective provider at about $30 per month
why are you asking a question you already have the answer to?...a
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cardguy wrote:
Apr 16th, 2019 4:28 pm
why are you asking a question you already have the answer to?...a
I just wanted to see if others do this and what do they charge/who they go with. I am looking at my options
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hightech wrote:
Apr 16th, 2019 5:25 pm
I just wanted to see if others do this and what do they charge/who they go with. I am looking at my options
Prolink is just an insurance broker. You could start by calling your broker and sending them your list of requirements.

I’ve been lucky in that my vendors have always covered my under their insurance umbrella. But at least the expense should be tax deductible.

C
[OP]
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CNeufeld wrote:
Apr 16th, 2019 6:14 pm
Prolink is just an insurance broker. You could start by calling your broker and sending them your list of requirements.

I’ve been lucky in that my vendors have always covered my under their insurance umbrella. But at least the expense should be tax deductible.

C
I don't have an insurance broker for this which is why I was asking. Didn't know that Prolink is a broker. Thanks
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You're talking about Commercial General Liability insurance. You may need it in business for many purposes, such as obtaining contracts or signing a commercial lease. You can get a competitive quote from almost any insurance broker who handles small business.

The challenge might be that many companies will also suggest - or require - that you also have Errors & Omissions insurance, as CGL doesn't cover things like you giving bad IT advice that costs your client money.
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hightech wrote:
Apr 16th, 2019 6:34 am
e. You need insurance because as an independent contractor, you are operating under your own business and a business needs insurance;
If it's your own business then it's none of their business whether you have insurance or not, not to mention why should you have them as a named insured? Tell them to get their own insurance.
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hightech wrote:
Apr 16th, 2019 6:34 am
According to the contract:
Certificate of Insurance
a. “XXXX” must be named on the certificate as the placement agency;
b. You must obtain a minimum of $500,000 in liability coverage;
[...]e. You need insurance because as an independent contractor, you are operating under your own business and a business needs insurance;
f. Many of our contractors choose to use ProLink. We have no financial incentive to recommend ProLink, but through our research, we’ve found that they are a cost effective provider at about $30 per month
Exp315 wrote:
Apr 16th, 2019 11:51 pm
You're talking about Commercial General Liability insurance. You may need it in business for many purposes, such as obtaining contracts or signing a commercial lease. You can get a competitive quote from almost any insurance broker who handles small business.

The challenge might be that many companies will also suggest - or require - that you also have Errors & Omissions insurance, as CGL doesn't cover things like you giving bad IT advice that costs your client money.
eonibm wrote:
Apr 17th, 2019 12:37 am
If it's your own business then it's none of their business whether you have insurance or not, not to mention why should you have them as a named insured? Tell them to get their own insurance.
Indeed, in an ideal world, you would have free choice whether your own company wants to carry insurance and against what perils; ditto the placement agency. However, companies are free to negotiate their contractual relationships, and this is subject to their relative strengths at the bargaining table. Yours may be low relative to the placement agency...

Here's my take on *why* this requirement is being downloaded to you. The worry is about injury to others or damage property you might cause, whether accidentally or worse. In this case, the injured party might sue everyone in sight, including in particular your company and the placement agency. If they are successful in their suit, they would be entitled to recover damages from either party, whoever has $. Acting purely in your self-interest, you might decide to obtain CGIL for your company, or you might not. The latter might actually be quite prudent, since the assets held in your company are quite limited, and faced with a $500k claim your company might just go bankrupt, with minimal assets, and you'd just start another company to market your personal expertise. The injured party would then turn to the placement agency, who might well discover their CGIL policy -- as is usually the case -- covers liability caused by its employees but not by "random" 3rd parties. And so the placement agency would find its insurance ineffective and be stuck holding the bag.

Of course, this ought to be an insurable peril for the placement agency (per eonibm's post), but that would go beyond the normal perils insured in a CGIL policy and so might cost them a lot more (per consultant) than having you get some standard coverage. And they have enough negotiating power to force you to do it, so why not (from their point of view).

As to being named on the certificate, that's beyond my expertise, but my layman's understanding is that without it, your insco will legally defend you and pay out if you are liable. Other parties in any mess you cause need to sue you to recover; which would include the placement agency. If they get named on the certificate, your insco is obliged to indemnify and defend them in a claim against them due to your liability. That's why they want that.

Bottom line is you are a pet wanting a treat (=client placement and $) from your owner (the placement agency). To get that treat you have to do whatever stupid pet tricks (=pay ~$30/mo to get the piece of paper they want) your owner wants you to do, unless you are prepared to just sit there looking enticingly cute until they decide they'll give you the treat even without the trick...
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A general warning on these types of "incorporated consultant" serving clients through a "placement agency" deals. Very often the placement agency will sell it as an advantage for the consultant, painting a rosy picture of freedom/flexibility and tax advantages for the consultant, in return for some "minor" incorporation paperwork. In reality, there are huge advantages for the placement agency, which insulates itself from the costs and requirements of having employees, e.g. benefits, job stability. All sorts of costs are downloaded to the consultant, e.g. (as here) insurance, incorporation/legal/filing fees, sometimes prescribed service fees, etc. Meanwhile the staffing arrangements may well end up skating very close to the line -- or beyond it -- for what the CRA will actually deem employment, at some point in the future disallowing the favourable tax treatment for the incorporated consultant and leaving them with a big tax, UI, and CPP bill. As a result of the (forced) incorporation, the placement agency gets to wash its hands of the mess more so than if it merely signed a contract for services by the consultant as an individual.

If OP - and others in this situation - haven't read up on Personal Services Businesses (PSB) vs CCPCs, and on the tests the CRA uses to determine whether someone is an employee or contractor, run don't walk to do so. https://www.bdo.ca/en-ca/insights/tax/t ... ase-study/ is a starting point, there is much more on this available once you know to look for it. Placement agencies are acting in pure self interest by too often being silent about this. There are arrangements where this is legitimately not an issue (consultant has credible standalone business, many clients, owns their own tools, makes their own decisions about how they spend their time, etc etc). There are others where the "consultant" decides to take the risk and are just prepared to pay up if audited. There are people who just file as PSBs right off the bat. Just go into it with eyes open.

This is of course outside the scope of the OP's specific question, and OP you may well have all of this covered. But anytime there are "consultants" jumping through incorporation and other administrative hoops imposed by a placement agency for its own benefit to access what look like temporary employment opportunities, I get a bit concerned....
[OP]
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houska

Thank you for your candid feedback and you raise some very good points. The difference in the hourly rate between a T4 and Incorporated is $8.50 and working off a calculation of 2080 hours a year, that works out to $17,680. Factor in that that as being incorporated, lower tax rates, and the fact that I could write off a number of things that a T4 person can't make it seem like a something to consider. That being said, I am still on the fence about this. In the past, I had taken T4 roles and those of a sole proprietor with the latter being able to claim deductions. I don't think many agencies want the SP person because of liability.

As for the PSB situation, if I do some activities on the weekend for another client, and bring my own laptop and things to do so, I think this should help me to get around that. I still need to talk to a CPA to get a better understanding about and how to get around this.
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houska wrote:
Apr 17th, 2019 6:37 am
Indeed, in an ideal world, you would have free choice whether your own company wants to carry insurance and against what perils; ditto the placement agency. However, companies are free to negotiate their contractual relationships, and this is subject to their relative strengths at the bargaining table. Yours may be low relative to the placement agency...

Here's my take on *why* this requirement is being downloaded to you. The worry is about injury to others or damage property you might cause, whether accidentally or worse. In this case, the injured party might sue everyone in sight, including in particular your company and the placement agency. If they are successful in their suit, they would be entitled to recover damages from either party, whoever has $. Acting purely in your self-interest, you might decide to obtain CGIL for your company, or you might not. The latter might actually be quite prudent, since the assets held in your company are quite limited, and faced with a $500k claim your company might just go bankrupt, with minimal assets, and you'd just start another company to market your personal expertise. The injured party would then turn to the placement agency, who might well discover their CGIL policy -- as is usually the case -- covers liability caused by its employees but not by "random" 3rd parties. And so the placement agency would find its insurance ineffective and be stuck holding the bag.

Of course, this ought to be an insurable peril for the placement agency (per eonibm's post), but that would go beyond the normal perils insured in a CGIL policy and so might cost them a lot more (per consultant) than having you get some standard coverage. And they have enough negotiating power to force you to do it, so why not (from their point of view).

As to being named on the certificate, that's beyond my expertise, but my layman's understanding is that without it, your insco will legally defend you and pay out if you are liable. Other parties in any mess you cause need to sue you to recover; which would include the placement agency. If they get named on the certificate, your insco is obliged to indemnify and defend them in a claim against them due to your liability. That's why they want that.

Bottom line is you are a pet wanting a treat (=client placement and $) from your owner (the placement agency). To get that treat you have to do whatever stupid pet tricks (=pay ~$30/mo to get the piece of paper they want) your owner wants you to do, unless you are prepared to just sit there looking enticingly cute until they decide they'll give you the treat even without the trick...
+1. The placement agency has the bargaining power unless you don't need them to secure the work or push comes to shove, you don't get the insurance that covers them and they use you anyway because they really need your skill set. The latter rarely occurs. So, they are offloading on you what is would cost them to have the coverage.

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