Construction Insurance Survival Guide

Construction Insurance Survival Guide

July 2016
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Warning: your construction business is at risk. But you are a construction business owner, so you already knew that. And if you are a sole proprietor, like many other construction business owners, business risk puts your personal assets on the line.

Luckily, you don't have to live in fear that a risk could bring your business to its knees, or lead to financial ruin. A little knowledge of risk management practices and the right construction insurance policies can offer you the protection you need.

How do you use risk management practices and construction insurance to protect your business, and maybe even help you reach higher profits than ever before?

Keep reading.

The Complete Guide to Construction Insurance

Construction insurance protects you by transferring risks away from your business as part of your overall risk management strategy.

Risk management

Risk management is the practice of identifying potential risks in advance, analyzing them, and taking the necessary steps to reduce their impact on your business.

How does construction insurance fit into your businesses risk management efforts?

Risk Management in 5 Steps:

  1. Identify the risks facing your business.
  2. Analyze & measure the risks: what is the possibility of it happening, and what will it cost?
  3. Control the risks through safety measures.
  4. Transfer risk that can't be controlled to insurance policies.
  5. Review and refine new and existing risks.

Using Construction Insurance Policies to Transfer Risks

Some of the risks to your construction business can be controlled. For example, you can lower the likelihood of an accident happening on the job site by following OSHA workplace safety regulations, training your employees to pay special attention to construction risks such as falls and electrocutions, and keeping your project sites clean and organized.

But no matter how hard you try to control and manage risks, you can't make them disappear completely. There will always be a chance that someone could get injured or have an accident.

That's why you transfer some of your business risk with construction insurance.

Insurance is the most common form of risk transfer. You transfer the potential consequences of a risk to an insurance company in exchange for payment of a premium and deductible.

You can use the following insurance policies to transfer away the risks that every construction business owner faces.

General Liability

Accidents happen. And when you are a business owner, you can be assured that you are going to pay when they do. A client could trip over a powertool cord on a project site. Your employee could accidentally back a work truck through a neighbor's fence. Your office assistant could put something on your company's social media account that offends someone. And if someone feels that their bodily injury, property damage, or reputational damage is the result of your business, you can bet a lawsuit is on its way.

General liability is there to protect your business from the high costs of third-party lawsuits as a result of:

  • Property damage
  • Bodily injury
  • Copyright Infringement
  • Product Liability
  • Accidents on your Property
  • Reputation Damage (slander/ libel)
  • Non-Owned (rented or hired) auto damage

If your business faces a lawsuit, general liability will pay for the costs of legal fees, lawyers fees, court fee, settlements, and other costs of your defense.

The Benefits of General Liability Insurance

The average cost of a slip and fall accident to a small business is $20,000 in legal fees. If you have transferred this risk away from your business with a general liability policy, the cost to you is your annual premium and deductible. And that saves your business a big chunk of change.

How to Make General Liability Coverage Affordable

You can reduce the costs of your general liability insurance premiums and make this policy even more affordable by avoiding general liability claims in the first place. Check out our tips on avoiding a claim, and you can keep your premiums on this must-have policy perfectly affordable.

Workers' Comp

Accidents at the workplace don't always affect a third-party, such as a customer or visitor to your workplace. Your employees can be injured by a workplace accident, too. When one of your employees falls of a ladder or gets tangled up with a power tool, workers' comp insurance is there for both of you.

Workers' comp will cover medical costs or lost wages while your employee is recovering from an injury or illness as a result of the work they perform for you.

The Benefits of Workers' Comp Insurance

Workers' comp insurance is there for your employees, because the truth is no workplace is 100% safe. Since workers' comp will cover the medical expenses and lost wages from an injury or illness at the workplace, your employees won't need to sue your business to recover those costs. The benefits of workers' comp are so widely understood that most states require business owners to carry it, even if they only have one employee.

How to Make Workers' Comp Coverage Affordable

There are a number of factors that go into calculating your workers' comp costs. The best way to keep your premiums affordable is to classify workers correctly to avoid fines and audits, keep your payroll numbers accurate, and to make workplace safety a priority.

Commercial Auto

When you (or your workers) drive your truck full of tools and equipment from one project site to the next, there is always a possibility of an auto accident. Whether it is a distracted teen texting while driving, or the mom who didn't see the stop sign because her toddler was screaming from the back seat, other drivers are a risk to your autos and the people driving them.

If you have been relying on your personal auto insurance to cover the vehicle you use for work purposes, you may be surprised to know that you are at risk. Only commercial auto insurance will cover a vehicle that you, or your employee, is driving for business purposes.

The Benefits of Commercial Auto Insurance

Commercial auto insurance gives you the peace of mind that the costs associated with an auto accident are covered if you, or your employee, is driving your vehicle for work. Whether it is driving to a project site, sending one of your workers out to pick up lunch, or dropping off a generator, your vehicles are covered with commercial auto.

How to Make Commercial Auto Coverage Affordable

You can keep your commercial auto rates low by hiring employees with excellent driving records. Your employees will be one of the biggest factors in determining your commercial auto premiums, so check their driving records before you hire, and at least twice a year. Compare premium prices before shopping for a new truck or van, too. Higher value automobiles often come with a higher premium price.

Tools and Equipment

Contractors and construction pros rely on their tools and equipment the way a musician relies on his instrument. Without the right equipment, you couldn't get the job done. If your tools and equipment were stolen from the back of your truck when you stopped to get gas, or to run into the bank on your way to a project, the cost to replace them could eat up your entire profit margin.

Tools and equipment insurance, which is also known as inland marine, is a specialty insurance policy that protects a contractor's tools and equipment as they are transported to and from project sites.

The Benefits of Tools & Equipment Insurance

From high dollar hand-held power tools, to compressors, generators, and other critical equipment, your tools aren't cheap. If you had to replace lost or damaged equipment, the cost could really set you back. Instead of paying out of pocket to replace your tools, inland marine coverage will kick in and cover the loss so you can get back to work.

How to Make Tools & Equipment Coverage Affordable

Avoid tools and equipment claims by keeping track of your high dollar tools on and off the jobsite. If you are transporting equipment, deter theft by keeping items in a lock box or locked trailer, and not laying out in easy reach in the bed of a truck.

Course of Construction

If you baked bread or sold gizmos and gadgets, you would have property insurance to protect your business investment, supplies, and inventory. As a construction pro, your inventory, materials, supplies, and investments are tied up on project sites, instead. But that doesn't mean you don't need protection from fires, theft, vandalism, extreme weather, or other unforeseen disasters.

Course of construction is a special form of property insurance that will protect your investments from those, and many other, risks during the course of a project's construction.

The Benefits of Course of Construction Insurance

Also known as builders risk, course of construction can cover you from loss from a fire, materials that have been damaged and ruined, or supplies that have been vandalized on a job site. You won't have to pay out of pocket to repair work that you have already completed, replace materials, or make up for lost time if an unfortunate incident happened on your latest project.

How to Make Course of Construction Coverage Affordable

Combine your course of construction insurance coverage with other must-have construction insurance policies, such as general liability, commercial auto, and workers' comp and you can get a discount on your policies. If you have enough cash set aside as a safety net, consider raising your deductible amounts to lower your monthly premiums, as well.

No matter what size your construction business is, risk management principles and construction insurance can help you survive the unexpected that could cost you everything. Risk management is all about protecting your business, and the right insurance policies are there to transfer the potential costs of those risks away so you don't have to pay for an accident or mistake. Protect your business from loss, and you can survive no matter what unforeseen incident comes your way.

Guest blog by Citizens General.

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