The Contractor Insurance Guide to Risk Management

Want to reduce the risk your construction business faces? Sure, that's a given. Because living in fear that a risk could bring your business to its knees is no fun at all. And if you're a sole proprietor of a small, artisan contracting business, worrying that business risk is putting your personal assets on the line is even worse.

A little knowledge of contractor insurance policies and risk management practices can offer you the protection and peace-of-mind you deserve.

This guide will show you how to use risk management practices and construction insurance to protect your construction business.

But first, let's get some definitions out of the way:

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

Risk management
The practice of identifying potential risks and taking the necessary steps to reduce their impact on your business.

Risk Management Steps

  1. Identify the risks facing your business.
  2. Measure the possibility and potential cost of a risk happening.
  3. Control the risks through safety measures.
  4. Transfer risk that can't be controlled with insurance.
  5. Repeat for new risks.

Transferring Risks to Contractor Insurance Policies

Some of the risks to your artisan contractor business are controllable. Like reducing the risk of injuries and accidents by following workplace safety regulations and keeping project sites organized and clean.

But you can't ever completely remove the chance that an accident or injury could occur, no matter how hard you try.

Transferring your risk to a contractor insurance policy ensures you don't have to pay out of pocket when the inevitable accident occurs.

Insurance, to put it simply, is a form of risk transfer.

In exchange for payment of a premium and deductible, an insurance company accepts the potential consequence of your risk.

Here are the contractor insurance policies you can use to transfer away the risks you're most likely to face as a construction business owner.

Contractor General Liability Insurance

When you own a business, you can be assured that you are going to pay the price when accidents happen. (And they do, often.)

Ladders slip. Clients trip. Employees say "whoops!"

If someone feels that their property damage, injury, or even reputational damage are the result of something you (or your workers) have done, you can bet a lawsuit is headed your way.

Contractor general liability is there to protect your business from third-party lawsuits resulting from:

  • Damage to property
  • Bodily injury
  • Accidents on your property
  • Copyright infringement
  • Product liability
  • Slander/libel (reputation damage)
  • Non-Owned (rented or hired) auto damage

Contractor general liability is designed to pay for the costs of legal fees, lawyers' fees, court fees, settlements, and other defense costs associated with a lawsuit.

Contractor General Liability Benefits
The average cost of a slip and fall accident for a small business owner is $20,000. If you transfer this risk to a general liability policy, your cost could be nothing more than your annual premium and deductible.

And that could save your business a big chunk of change.

Workers' Compensation Insurance

Workplace accidents don’t always affect a third-party. When one of your employees falls off of a rooftop or gets tangled up with a power cord, workers' comp insurance assumes the risk for you.

Workers' compensation insurance is designed to cover medical costs or lost wages resulting from an employee work-related injury or illness.

Workers' Compensation Insurance Benefits
The truth is: no workplace is 100% safe. Even office workers who sit sedentary at a desk all day face work-related injury risk. Workers' comp will typically cover the medical expenses and lost wages from a work-related injury or illness. Which means your employees won't feel the need to sue your business to recover those costs.

The benefits of workers' comp are so valuable that most states legally require business owners to carry it, even if they only have a single employee.

Tools and Equipment Insurance

Without the right equipment, you couldn’t get the job done. Period. If your high-value tools or equipment were stolen from the back of your truck when you stopped at the bank on your way to a project site, what would it cost to replace them?

Tools and equipment insurance is a specialty insurance policy that protects the tools and equipment that get transported to and from project sites. (It's also known as inland marine insurance.)

Tools & Equipment Insurance Benefits
From high dollar power tools, to specialty equipment like compressors, and generators, your tools aren't cheap. Replacing lost or damaged equipment could really eat away at your profits. Inland marine insurance transfers away the risk of paying out of pocket to replace your high-value tools and equipment.

Commercial Auto Insurance

As you drive yourself from one project site to the next, the risk of an auto accident is ever-present. Distracted moms with screaming kids in the backseat of the minivan. Teens too busy "Tick Tocking" while driving to see a stop sign. The risks of the road are high and other drivers are a constant danger.

Commercial auto insurance is designed specifically to protect a vehicle that you, or your employee, is driving for business purposes. It's also designed to protect any autos owned or used by your business.

Your personal auto policy, on the other hand, isn't designed to cover your vehicle if you're using it for business purposes.

Commercial Auto Insurance Benefits
Commercial auto insurance provides peace-of-mind that an auto accident is covered if you, or your employee, is using a vehicle for your business purposes.

Whether it is driving to a project, sending one of your workers out on a coffee run, or dropping off materials to a site, commercial auto ensures your work autos are covered.

Builders Risk Insurance

If you made lattes, taught yoga, or sold supplements, you would have property insurance to protect your business supplies, materials, and inventory.

But for construction pros, your materials, supplies, and inventory investments are often tied up on project sites, instead. And that means they're at risk from fires, vandalism, theft, or other unforeseen incidents.

Builders risk insurance is a short-term insurance policy that protects your investment in materials, supplies, and work completed while you're working on a project.

Builders Risk Insurance Benefits
Builders risk insurance can assume the risk of loss from a fire, damaged materials, or supplies that have been vandalized on a project site. It protects you against paying out of pocket to repair work you've already completed, replace materials and supplies, or make up for lost time if something goes wrong before the project is complete.

Risk management is an essential part of any successful construction business. And contractor insurance is an essential part of risk management. You can work around the clock to identify and minimize risks to your business, but you can never be 100% risk-free. You can, however, transfer your remaining risk to contractor insurance policies and protect your business against losses, accidents, and mistakes.




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