A contractor's annual gross receipts for the past three years were $850,000, $920,000, and $1,100,000. Under Alabama licensing requirements, what is the minimum general liability insurance coverage required?
Correct Answer
C) $300,000
For contractors with gross receipts over $500,000, Alabama requires minimum general liability insurance of $300,000.
Why This Is the Correct Answer
Alabama requires contractors with gross receipts over $500,000 to maintain at least $300,000 in general liability insurance coverage. All three years of this contractor's receipts exceed $500,000 (lowest year: $850,000), so the $300,000 minimum applies. The three-year history confirms this is not a one-time event — the contractor consistently operates at this revenue level.
Why the Other Options Are Wrong
Option A: $50,000
$50,000 is far below the required minimum for a contractor operating at this revenue level. Alabama sets higher insurance thresholds for higher-volume contractors, and $50,000 would not satisfy the licensing requirement for anyone with receipts over $500,000.
Option B: $500,000
$500,000 in insurance coverage exceeds the minimum requirement. While a contractor may choose to carry more coverage, the Alabama licensing minimum for contractors over $500,000 in receipts is $300,000 — not $500,000.
Option D: $100,000
$100,000 may apply to contractors with lower gross receipts. At $850,000+ in annual receipts, this contractor exceeds the threshold that would trigger the $300,000 minimum, making $100,000 insufficient.
Memory Technique
Over $500K in receipts → $300K in coverage. The insurance floor grows with the contractor's revenue tier. Associate the $500K revenue threshold with the $300K insurance floor: 'Big receipts, bigger coverage.'
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