General contractors, they must have life insurance.

Submitted by atlantamonart on Thu, 12/20/2007 - 03:20

Did you know all commercial contractors they need to have life ins.. This is a requierment by their bonding company. This is just incase if they die at the middle of the project.

Has anybody approch them to sell life ins. to them. I think if you have good term ins that you can sell them you are in a good position with them!

Has anybody has any experience with them?

May

Posted: 20 Dec 2007 03:30 Post Subject:

I know nothing about life insurance but cannot see that this would be true. Life insurrance would be paid to the contractors befeficiary... not to the party they were working for. So why would a bond carrier care about life insurance? Anyone doing a job could die in the middle of it. Everyone is not required to carrier life insurance.

As always... I could be wrong.

Posted: 20 Dec 2007 11:36 Post Subject:

I agree with tcope, first that I don't know squat about life insurance...but would hazard a guess that this may be a state issue to make sure that there is money to pay his vendors and subs...but again not sure how the bonder would come into play other than to make sure ''they'' arent' the only ones paying...... :?

Posted: 20 Dec 2007 02:52 Post Subject:

To answer your question: The general contractor has to buy life insurance and have his company to be at least part of the beneficiary, so that bonding company can come and finish the jobs he has insured.

May

Posted: 20 Dec 2007 04:50 Post Subject:

A bond ensures that the contractor will complete the work on-time and for the stated amount. If the contractor dies, I'd think a valid claim could be filed against the bond. As such, the bond would address this type of situation... so why would life insurance be needed? If the money from a life ins. policy went to the remaining owners of the CG's company, how would this change anything? Are you saying the proceeds from the life policy would need to be given to the bond company (I don't see this as enforceable anyway)? If so, what good is a bond if the life policy is going to pay the claim anyway?

Posted: 21 Dec 2007 01:20 Post Subject:

Life insurance policy for General Contractors are required by the bonding companies, for the following reason:
In case of death for the owner of GC company, the bonding company will use the life money to expend for finishing outstanding contracts, left behind by the deceased GC.

Posted: 21 Dec 2007 02:00 Post Subject:

So what would the purpose of the bond policy be... if it's the life insurance policy that would pay? Beside that, if the GC's family or even the business get's the life money, there is no way for the bond company to make them complete the job or to pay that life money... it's not the bond companies money and they would not have a legal way of obtaining it.

Posted: 21 Dec 2007 02:26 Post Subject:

The life insurance purchased by the GC, the beneficiary to the policy, is the corporation.
a general contractor is to make, the benefoiciary, part the family and part the company.
we are familiar with the subject matter, because my husband & I have been in the business of general contracting for 20 years.

Posted: 21 Dec 2007 10:38 Post Subject: I don't understand this either

I don't understand either, why the bonding company (in effect) would be the bene. of the life policy...are we sure this isn't a pecular state law? Not that it isn't true just that it makes no common sense...Why not just have a higher bond? I thought that bonding insured deligent care of property and money not necessarily owned by the bondee....i was bonded when we owned a bait and tackle shop, because i sold fishing/hunting permits and had to send the conservation dept their money..so if i ran off with the money then the bond would've had to pay them....i totally get partners requiring large life policies but not the bonding companies...."a general contractor is to make, the benefoiciary, part the family and part the company." OP does it say this in the policy? and what percentage? It seems like a rip off to me the bonding company gets away with using the proceeds of a life policy? and the bond is for a certain amount anyway right? wouldn't they just pay that amount and be done with it?

OP please don't misunderstand we aren't challenging your experience

we are familiar with the subject matter, because my husband & I have been in the business of general contracting for 20 years.

it's just from a legal and insurance stand point it's just not making sense to us....and we both freely admit to limited knowledge in the life insurance area...ok?

Where are our agents, and ins. teacher we need you dude! I've sent ins teacher a pm and hopefully he will have time to comment and maybe clear this up for tcope and i ....since we are having so much difficulty understanding this premise. :?

Posted: 22 Dec 2007 01:32 Post Subject:

I beleive i have been totally misunderstood. a bonding company in an in

direct way requires a general contractor to purchase a life policy, with the understading that portion of the benefit goes to the corporation, and other portion to the family of the deceased owner, in this case the owner of the general contracting corporation, wether "C" or "S" corporation. the portrion for the corporation will be used to finish the uncompleted contracts, which was left behind by the deceased CEO, owner, or president of the subject company.

Posted: 22 Dec 2007 01:59 Post Subject:

No misunderstanding. No one can legally make anyone spend the life insurance money to complete the work. This would not be legal.

Also, many CG's are self employed or their relatives have no interest in the CG's "company". So again, no one could make these people spend the proceeds of the life policy on anything.

Lastly, we have been saying that he _purpose_ of a bond is to ensure that the work is completed and completed on time. What good is spending money on a bond when the bond company would make the CG get a life policy that would take the place of a bond? This makes no sense.

I've not been able to find any information showing that a GC needs a life policy to get a bond.

Posted: 23 Dec 2007 02:52 Post Subject:

A bonding company is an isurance enterprise, who is in the market to make money, not to lose any money. they charge, depending on the credit and financial stability of the contracting company,,b a fee of .012 percent to .019% of total cost subject project to ensure a G.C. Therefore, they want to act very conservatively for not losing any money. Also, needless to mention that, a bonding company, always asks indemnity agreement from the owner& it's spose, if applicable. That makes them secured if the spouse owns anything for recovery.

Posted: 02 Jan 2008 08:09 Post Subject:

OK...let's clear up some things. I have been asked by a senior member to reply to this post and see if we can find some intelligence here. I'll do my best...

First of all...bonding is NOT insurance in any way, shape or form. Bonding is nothing more than AN EXTENSION OF CREDIT, if you really look at it properly. This is why, for example persons with bad credit CANNOT get bonded.

Bonding is primarily a performance guarantee. There are many types of bonding situations out there: contractor bonds, jail bonds, fiduciary bonds, ad nauseum...

Since we are talking about a construction contractor's bond, let's continue from there. Almost every state requires that all contractors have both liability insurance AND bonding to a certain minimum coverage level. Additionally, most states are now also requiring licensure for construction contractors. Specifically concerning the bonds: these are bonds that will guarantee the performance of the contractor up to the limits in the bond: finishing work, purchase of materials billed to the customer and a number of other concerns. Again, since we are basically talking about an extension of credit, let's look at a scenario-->

Contractor "A" has walked off a job right in the middle of completing his work and has left the customer in the lurch. It had nothing to do with the customer paying his bills to the contractor. The contractor just left an unfinished job and gained an unhappy customer. So, what now?

The bonding company is commonly referred to as the "avenue of last resort." Normally, the customer has to jump through a number of hoops before the bond will actually pay, and the customer may have to even SUE (rare, but it occurs) the contractor before the bonding company will pay the customer for the LACK of performance.

Assuming the customer has completed the requirements as laid out by the bonding company, then the company will pay the loss up to their limits as shown in the bond. Then comes the fun part: the carrier will now go after the contractor to recover the monies that they have paid the customer! Remember--- it's an extension of credit and NOT insurance!

Finally, to address the "life insurance" question that came up in the OPs question.

I have been dealing with bonding in it's manifold shapes and forms for more than 15 years and HAVE NEVER ONCE IN MY LIFE seen the scenario posed by the OP.

Frankly, life insurance and bonding have NOTHING in common with eachother. I do NOT see the necessary relationship here, nor have I ever seen a producer relate the products in the sense posed in the question. So, my answer is:

I AIN'T BUYIN' IT! Now, I will be the first to say that I don't know every law in every state (I'm getting there lol), but this would seem to be contradictory in every sense of the insurance world. Remember: bonding DOES THIS and there would be (IMHO) NO NEED for anything additional.

The life insurance could be used to pay off remaining debts of the now dead contractor (aside from the bonding needs), but I can't say that I have ever seen it made as a requirement for contractor's in ANY state.

Not exactly sure if this response did anything but confuse people...but hopefully it made certain things clear...

InsTeacher 8)

Posted: 03 Jan 2008 11:07 Post Subject:

OK...let's clear up some things. I have been asked by a senior member to reply to this post and see if we can find some intelligence here. I'll do my best...

THANK YOU THANK YOU AND THANK YOU AGAIN!

I knew you would be able to clear this up for us! It's basically what we thought, (bonding).....can't thank you enough for looking at and responding to this thread.........

Posted: 03 Jan 2008 05:41 Post Subject:

Well, I could also be wrong as there are numerous ways of getting around things. My hubby worked in commercial contruction yrs ago. He never had a bonding company or life insurance, he did had liability insurance though.That I beleive was supposed to take care, somewhat of the business.

Posted: 03 Jan 2008 06:13 Post Subject:

A bond would protect the person who hired your husband to do the work. It basically assures that the job will get done as planned. A General Liability policy does not cover work product.

Posted: 04 Jan 2008 03:23 Post Subject:

I have tried to help some agents with an inside information of a trade, that I have been involved in it for 15 yeards. But it looks like it is getting complicated.

My friend when you say "Then comes the fun part: the carrier will now go after the contractor to recover the monies that they have paid the customer! Remember--- it's an extension of credit and NOT insurance! "
What happens if the contractor is dead ? The Bonding companies think about all these senarios.

Beside the customer will obtain PERFORMANCE bond from the contractor. It means if for what ever reason the contractor does not finish the job the Bonding company now has to come and perform the job untill it is completed. Can you imagine what a hard job it is for a customer to come and finish an unfinished job . That is why they obtain PERFORMANCE BOND from the contractors.

i need to mention that I am talking about Commertial General Contractors here, as this is my expertise.

I really do not want to confuse anybody, I really wanted to give a hint, a tip to the agents.

May

Posted: 04 Jan 2008 11:37 Post Subject:

I really do not want to confuse anybody, I really wanted to give a hint, a tip to the agents

I think everyone understood this May, where we were confused (and in disagreement) was the ascertion that a life policy be purchased with the bond company being the beneficiary.

I think we are all on the same page now...and thank ins teacher again for his contribution and clarity to this thread.....

Thank you too May for your post and hope to see more!

Posted: 04 Jan 2008 06:06 Post Subject:

Thanks for the props, Lori. Same back at ya.

Lat comment on this thread from me, unless I feel the need to comment again. I take umbrage with the following post portion:

Beside the customer will obtain PERFORMANCE bond from the contractor. It means if for what ever reason the contractor does not finish the job the Bonding company now has to come and perform the job untill it is completed. Can you imagine what a hard job it is for a customer to come and finish an unfinished job . That is why they obtain PERFORMANCE BOND from the contractors.



That gives the impression that the bonding company (the insurer) will actually make sure that your job is completed. NO NO NO NO NO! The bonding company will only provide compensation, UP TO IT'S LIMITS, and will NOT ensure that the job is completed! Just about every state has MINIMUM bonding coverage limits for contractors depending on what type of work is preformed (residential, commercial, square footage, etc.), and most contractors only purchase the minimum amount required in their state.

As an example, if the contractor leaves $50k unfinished work, and has bond limits of $25k, do you think the insurer will pay the entire $50k? Don't think so...

Consider the following quote from (I hope this is allowed, Lakemen) from Wikipedia:

A performance bond is a surety bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor.
For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to the bankruptcy of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.

Performance bonds are commonly used in the development of real property, where an owner or investor may require the developer to assure that contractors or project managers procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor).



Here is another quote I think worth mentioning and then blowing up:

What happens if the contractor is dead ? The Bonding companies think about all these senarios.



Of course they think about it. All insurance companies think about it with many different policies issued.

Here's the answer: like ANY creditor, if you owe them money and you die, they will GO AFTER YOUR ESTATE and will be considered an UNSECURED CREDITOR...just like your visa card! They will take THIRD position as to the disposition of the assets behind (1) the government; (2) Secured creditors, and finally (3) unsecured creditors.

Phew...I guess experience in an area doesn't guarantee knowledge in that area. Sorry about the attitude, but before a post is submitted, the author should check to see if the info offered is actually ACCURATE.

InsTeacher 8)

Posted: 21 Jan 2008 03:18 Post Subject:

Bonding companies do consider the "what if they die..." scenarios, but not for a small bond like you are discussing (more likely for over $500K).

For smaller bonds (and large bonds alike) they rely on the indemnity agreement that must be signed prior to issuance of the bond. The bond states that the principal holds the carrier harmless in the event of a loss. Keep in mind this is personal, spousal, and coroprate indemnification.

I'm a bond producer, but I am sure you can find multiple bond underwriters that will back up my statement at the Surety Forums

Posted: 21 Jan 2008 04:10 Post Subject:

My hubby was never bonded but none the less he still worked and was hired to do a lot of jobs.

Posted: 21 Jan 2008 07:17 Post Subject:

hummingbird, not all municipalities require a bond. If no one is requiring it of him then he can not obtain a bond, as they are three party guarantees, not insurance.

This means that if there is no bond to be filed then he can continue as has been without consequence.

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