Is insurance required?

We often get asked if insurance is required in Florida.

There are really only two reasons that you are required to have insurance coverage. One is if it’s required by law, either local, county, state or federal. The other is if it’s required by contract, including leases, financing or mortgages, vendor or construction contracts.

Required by law

There are a lot of situations where insurance is required by law; one simple example is auto insurance. If you own an automobile that needs to be registered in order to drive then the State of Florida requires that you purchase at least personal injury protection and proper damage, but if you’re involved in an at-fault accident where someone gets hurt, then the State of Florida requires that you also purchase third-party bodily injury coverage.

Another example in Florida where the law requires you to purchase coverage is if you have certain licenses, for instance, a General Contractor’s license. In Florida, General Contractors are required to purchase $300,000 in General Liability coverage. Many other professional licenses require you to carry coverage, e.g., propane dealers, certain health care providers, automobile dealers, and many types of contractors.

We recommend that you check with the applicable licensing board to confirm what coverage if any may be required.

You might also be interested in this: 10 minutes to a basic understanding of General Liability

One more example that is worth mentioning is when Workers Compensation coverage is required. In Florida, employers can be required to carry this coverage. If the business is in the construction industry, it is required to buy the coverage even if they only have one employee (including the owners if they have not filed for the State exemption). Businesses that are not in construction are required to obtain the coverage when they have more than three employees (again, including the owners if they have not filed for the State exemption)

The Federal Government can also mandate coverage like they do in situations involving interstate trucking.

Many counties and local municipalities also require coverage for differing reasons, including occupational licenses (or business tax receipts) or permits to do business in their jurisdiction. These types of requirements can vary wildly between different jurisdictions. For instance if you have an auto repair shop in Miami-Dade County, Florida, you are required by ordinance to have $50,000 of Garage Liability insurance and have Garage Keepers coverage though they don’t specify a limit, but in Broward County, Florida, the ordinance requires that auto repair shops carry $50,000 in Garage Liability and specifies that they must carry at least $50,000 in Garage Keepers coverage. Many other counties don’t require any coverage at all for auto repair shops.

We recommend that if you’re opening a business location or going to be doing operations in a different jurisdiction that you also check with the county and local municipality to make sure your coverage is in compliance with all coverage requirements.

Required by contract

One of the confusions many clients start off having is when they are being required to have a coverage by contract that is not required to have by law. For all intents and purposes, a contract can require you to purchase any kind of insurance that the entity who created the contract wants. Of course, there are some limitations but not as many as you would think. We can’t stress enough the importance of reviewing the insurance and indemnity requirements in every (yes, every) contract with your independent insurance agent to ensure that you don’t get surprised after the fact.

Automobile or Equipment Leases

Whether you are leasing a car, equipment or a location almost all leases have insurance requirements. With automobiles or equipment, the leases often require liability and physical damage coverage for the car or equipment that you are leasing.

Premises Leasing or Renting

When you are leasing or renting a location, the insurance requirements can vary considerably from landlord to landlord. Almost all landlords require that their tenants at least carry liability insurance. Some require that you carry Property insurance, which could mean building coverage, contents coverage, improvements and betterments coverage, business interruption coverage, and even equipment breakdown coverage. Additionally, we have seen rental agreements that require tenants to carry Workers Compensation and Business Auto Liability (Commercial Auto Liability). It all really depends on what you have negotiated on your lease or rental agreement with the landlord. It’s important that these terms be negotiated prior to the lease being signed because in our experience the tenant can get stuck having to purchase coverage they didn’t want to or didn’t expect to which can make affordability an issue.

Financing or Mortgages

Most contracts for financing or mortgages focus on coverages for the collateral for the loan. For example, if you have a mortgage for a building, the bank or lender requires that the building be insured for physical damage. If you have a line of credit or floor plan financing, the lenders often require that you insure the stock or contents that were purchased with the loaned money and since in some of those cases the collateral is the income of the business, they also require that business interruption coverage also be purchased. There are times that the lender or bank requires that liability coverage be purchased but that is less often than property insurance.

Contractors or Construction

With construction contracts there are always insurance requirements, but there is no real standard in what can be requested so they sky is the limit. The differences have to do with the owner of the project, the general contractor, the financing, the myriad of different requirements required by laws or ordinances. All those factors affect the insurance coverages and limits required so special attention should be paid to the insurance requirements and indemnity requirements to ensure that all of the requirements are being met or have been negotiated off the contract.

Vendors

Vendors or contracts that have to do with services being rendered most often require liability insurance because the contract is trying to offset the financial impact of bodily injury or property damage caused by your product or service. Sometimes there is also the requirement to insure the property that you may be installing or servicing.

The crux

Insurance can be required for many different reasons, so it is really important that you include as part of your business plan or research a review of the legal and/or contractual insurance requirements before you open for business or sign any documents.

We can’t stress enough that this should be done BEFORE because when clients get surprised by requirements, the cost can often really eat into the profits. In our experience, you would be surprised how much of the insurance requirements can be negotiated prior to executing a contract, so take the time to know what they are, what they will cost you, and that way you will be prepared to make the best decision for your business.

This was a very broad and general explanation of some situations where insurance is required, but some situations may require a more detailed and nuanced approach than we have covered here.

Keep in mind that NOT all insurance is created equal.

No matter what you may see on TV or internet ads, all policies are NOT the same. You should spend some time with your independent insurance agent to discuss your coverages and make sure that the insurance coverage you want to have is the coverage you do have on your policies. If you don’t have an independent agent or would like a second opinion feel free to call, chat or email us and we would be glad to discuss your needs and/or policy with you. Thank you.

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About Author

Alexander Dopazo
Co-founder and Insurance Nerd

Husband to an amazing woman and dad to two great kids. 20 years of experience with helping customers understand insurance and how it can help their lives and businesses.

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