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These days, nearly any business in operation needs to have some type of liability insurance coverage to protect itself from being sued. Building contractors are no exception to this insurance rule. Plus, this is true for both big construction companies that take on huge projects as well as small business contractors, regardless of the types of projects that are being completed. This means that even if your contracting business is small and you only do minimal home improvement projects, you will still need to purchase contractor liability insurance to protect yourself.
We have all heard about liability insurance before, particularly when choosing an automobile insurance policy. In this case, we have the option to purchase full coverage or just liability coverage, which only covers damage that your car may cause to other people or property. Contractor’s liability insurance is actually quite similar. For contractors, the liability insurance covers damage that is caused to both property or individuals as a result of the work that is being completed. This type of insurance policy is appropriate for all facets of construction or building from home building, to home remodeling and even road construction crews.
When starting a new contracting business, we often focus on the planning, financing and marketing aspects that go into a successful company but we often forget about purchasing the required insurance. It may seem like a hassle or an unnecessary expense; however, when the need for it arises, you will certainly be glad that you took the time to get it before something disastrous occurred. Without the appropriate insurance, you can risk your business and your livelihood by leaving yourself or your company open to costly lawsuits.
An important part of running a successful business is learning how to minimize risk, and getting contractor liability insurance is a good step in the right direction.
One of the most important reasons to procure liability insurance is purely as a safeguard for both yourself and your business. Without insurance, any type of accident that causes damage to another individual’s property or to another person can potentially cost you a large amount of money, along with exhausting court dates, and not to mention, it could possibly force you out of business. You cannot plan accidents, which is exactly why they are labeled ‘accidents’. Obviously, we do not wake up in the morning and intend for any accidental damage to occur at our current project site. They happen at any time and seemingly at the times during which we are least prepared. But if we prepare in advance by purchasing liability insurance, we can make dealing with accidents as seamless as possible. While we do not wish for them to happen, it certainly does not hurt to have a financial plan set in place before a disaster occurs.
In addition, depending on where you live, contractor’s liability insurance may not be an option; instead, it could be a requirement. Some states require all contractors to purchase insurance before the appropriate governing board will issue a contractor’s license. In addition, individuals or companies seeking to hire contractors may require proof of liability insurance and proof of a contractor’s license before you are awarded or physically begin a project, regardless of the state laws. It is actually best to obtain the insurance policy and have an original certificate of insurance in your hand before you even think about bidding on projects, even though many states may allow you to bid prior to purchasing insurance. Depending on how quick your insurance company works, it may take several days or weeks to physically obtain your certificate and copies are typically not acceptable. Usually, construction projects have set contracts with predetermined start and finish dates. Obviously, if you have to wait for your certificate of insurance to come in the mail, you may miss crucial deadlines and as a result, break your contract. So it follows that obtaining the appropriate insurance policy can either make or break your small business construction projects.
When it comes to finding a policy, the liability you choose will be dependent upon a number of things. First, you will need to research the dollar amount of coverage that your state requires you to have based on your line of work. These requirements, if applicable, are simply a minimum baseline that you should follow. However, keep in mind that accidents may occur that could cost well over that minimum coverage requirement and you may have to pay for the excess out of your own pocket when a claim is filed. So you will need to consider the type of work you do and how much your yearly contracts are worth. If you are building commercially, you will probably want a policy worth a couple of million dollars or more, depending on the types of commercial buildings you intend to build or work on. However, if your business is smaller and procures approximately $200,000 in yearly contracts, your policy should probably cover up to three times that amount.
Of course, the dollar amount of liability coverage you need will play a huge role in determining the price you will pay for the insurance policy. Likewise, similar to the rules on car insurance, construction liability insurance policies will vary in price depending on the danger that the business experiences throughout the duration of the project. For example, roofing companies should expect a higher rate than other trades, such as painting, simply because of the danger associated with working on roofs. Other factors that go into policy pricing include the overall risk of damage based on the line of work and the number of employees that the company employs.
Smaller businesses often have a more difficult time in paying for construction liability insurance, which is why finding the best deals can be essential. The best way to get a discount on your liability policy is to use the same insurance company for each of the insurance policies that you hold. Often, companies will offer a discount for each policy that you bundle. Another important factor in getting the best deal is to make sure you are dealing with an honest insurance agent. Some agents are only looking out for themselves and will sell you any policy, whether you need it or not, just so they can make money. However, not all agents are like this and many will actually help you determine what coverage you do need and what you do not need. So before choosing a company or working with one single agent, be sure to perform a quick judge of character before signing any paperwork. You should also be sure to do your own research before discussing policies with an agent, just to make sure the agent is not being deceptive.
Another option is to use the internet to research small business contractor insurance policy quotes. Doing research, in general, is always a good idea anyway. However, these days you can actually get multiple quotes from multiple insurance companies before you ever talk to anyone, as well as overall suggestions for the policies you may or may not need. This can really help you compare and save when it comes to business insurance policies. The downside is that you will need to determine what you need and do not need on your own. But if you are not quite ready to search and save on your own, you can also enlist the help of an insurance broker. These people do not work for insurance companies. Instead, they work for you to help you get the coverage you need and nothing more. These insurance specialists are typically professionally licensed themselves and can usually steer you in the right direction without being biased. The downside is that premiums are usually a little higher when purchasing through a broker. However, you may rest more comfortably knowing that a professional in the insurance industry is looking out for your best interests.
When seeking out insurance companies, you may quickly be overwhelmed by all of the options. My favorite way of picking out the good, the average, and the terrible companies is through word of mouth reviews and experiences. The best way to get a sense of how good an insurance company is, is to ask some fellow contractors about their policies and the companies they use. Ask for the good experiences as well as the bad and you can make some decisions from there. Another great source is the Better Business Bureau, which grades companies based on performance, complaints and resolutions. A quick search on the BBB’s website for the insurance companies you are contemplating to use will give you a general status of their business practices and an overall letter grade between A+ and F, with A+ being the best rating.
Even after doing a lot of research about contractor liability insurance coverage, everything can still be rather confusing. If you still have doubts about requirements or how to get an affordable policy, you can also check with your state’s contractor license board to get more information. Even if your state does not require the purchase of insurance, it is still a good idea to obtain a policy anyway to protect yourself and your small business. You will certainly be happy that you incurred the monthly or yearly expense of a liability policy the next time something unexpected happens during a project.
My name is Jeff and I created this blog in 2007 to help and inspire contractors and home service providers. It’s come a long way since then.