What Is The Cheapest Contractor Insurance?
Contractors have a lot on their plate. They don’t just have a business to run; they also have to perform a lot of the construction jobs themselves. It doesn’t help that contractor insurance is oftentimes expensive, complicated, and required for many projects. That’s why many contractors are looking for a low-cost policy that complies with their job requirements. Finding cheap contractor insurance isn’t easy or as straight-forward as many think.
That’s why we frequently get the following questions:
- What is the best way to find the cheapest business insurance for contractors?
- What are the best insurance companies for contractors?
- What insurance company offers the best rates?
These questions (and others) are what led us to create this guide – to help you find the best deal on contractor insurance. We hope it helps you understand the answers to those questions and maybe others that you might not have thought about yet.
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When going through the process of getting quotes, we often see contractors making the same mistakes over and over again. The truth is there is a strategy to lowering the cost of your insurance. In fact, our company has specialized in doing just that since 1922. Here are our tips:
Looking for more information on what insurance contractors need? Check out our Guide To Contractor Insurance.
Basic Contractor Insurance Coverages
Before we give our tips on how to get the best rate on your contractor insurance, let’s review which policies you should be shopping for. Every business is different, but most contractors will need these coverages:
Commercial general liability (CGL) insurance is the most important policy for contractors to purchase. Its broad coverage protects your business against the most common (and expensive) liability issues. Plus, many of your clients will likely require that you show proof of general liability coverage before you’re hired.
In brief, a general liability policy covers bodily injury or property damage that you cause to a third party (anyone that is not you or an employee) while you are running your business. This includes incidents that happen on or off the job site—if you were performing work you were hired to do, CGL will cover the costs of building repairs or medical bills of the injured person. For example:
- If you were improperly operating heavy equipment on the job site and it damaged the client’s building or injured a passerby, you would be covered by CGL.
- If building materials for your project were to fall from the building and cause damage to someone else’s property below, you would be covered by CGL.
A contractor’s general liability policy should also include products and completed operations coverage. This means you’ll be protected from claims that happen after you finish a job. The policy recognizes that covering a issue with the finished work is just as important as covering a contractor while they are doing the work. Some issues such as faulty construction may not instantly appear and could manifest down the road, and covers you from that.
A contractors tools & equipment policy covers the tools and equipment you own or lease. If they are damaged or stolen from anywhere—the jobsite, your home or office, even a work vehicle—the policy will pay to replace them. Think of it as property insurance that isn't tied to a location.
Contractors tools and equipment insurance covers everything from heavy equipment to hand tools: bulldozers, lawnmowers, jackhammers, drills, and even building materials that have yet to be installed (e.g. HVAC systems, lumber, or stone). This shields your business from the expense of having to replace these items and ensures your ability to complete the job won’t be impacted by missing equipment.
Workers Compensation (If You Have Employees)
Most states require that you carry workers compensation insurance if you have any employees. This policy covers the medical bills and partial lost wages of an employee who is injured while working for your company.
Not only is this coverage legally required, but it is fiscally smart. Many state laws say that you are responsible for the cost of a worker’s injuries even if they were at fault. As you can imagine, medical costs for even moderate injuries can skyrocket and threaten your business’s financial stability in no time. This policy doesn't require you to be found partially responsible for causing the injury to activate the coverage.
Having a workers compensation policy is also a good business practice if you hire 1099 contractors or use subcontracted labor. If there is a workers comp claim for an uninsured person or company that you hired, the claim can fall on your shoulders.
Contractor License Bond (For Certain Trades)
Depending on the industry and trade, some contractors need to purchase a surety or license bond. For example, if you are bidding on a large or public construction project, you will either need to be covered under a surety bond or a subcontractor default insurance program.
A bond is simply a financial guarantee that you will follow through on a contractual agreement. If you cannot finish the project you were hired for or your company shuts its doors, the insurance company will pay to complete the portion of work you are responsible for. This typically applies to a contractor going bankrupt while working on a construction project.
A bond is not technically an insurance policy because you have to reimburse the bonding company, but it is usually purchased through your insurance provider.
Sometimes you need to add a little bit of property insurance to get a better rate on the liability.
While all insurance companies are different, the majority of them offer their cheapest rates on theBusiness Owners Policy (BOP).
This policy is a combination of general liability and property insurance. Some companies even offer contractors equipment insurance on the BOP.
Many insurance companies will require you to add a small amount of property insurance to the quote if you want to gain access to their cheap liability insurance for contractors policy (and the associated low rates). This is because a BOP is a property and general liability combination policy.
This won’t be the case for all carriers, but for some (most, actually), the prices come in much cheaper this way. Plus, the BOP coverages are usually very good and cover many scenarios.
There is no such thing as "the cheapest insurance company." There are only companies that like your company more than others. Try to find that insurance company.
The insurance company that provides the cheapest rates for all types of contractors is either bankrupt or does not pay claims. Insurance companies make an average profit of 2% of total premiums collected. They can’t have cheap rates across all trades and industries if they want to survive.
Instead, insurance companies find small areas across industries that they have expertise in and offer their discounts to businesses that fit into that category. For example, CNA Insurance might not offer a competitive quote on a carpentry contractor (or might not provide a quote at all), but is the lowest price on a pool & spa contractor. This is because CNA specializes in pool contractors and is a specialty of theirs.
There is a reason we work with over 70 insurance companies: each company has different industry specialties.
As a business owner, your goal should be to find an insurance company where you fit right into their core area of expertise and industry niche. This method will get you the best long-term rates and coverages. Additionally, when you team up with the right insurance company, you’re partnering with a business that has years or decades of experience handling claims for companies like yours. They’ll ultimately have the best chance of getting you out of a lawsuit.
Shopping for insurance quotes too often will result in worse deals.
In many ways, commercial insurance is still relationship-driven. It is important to maintain a quality reputation among underwriters in your area.
If you shop for insurance coverage every year, an underwriter will see that paper trail and know that if they bid on your insurance, they will only get it for a year. There are many other businesses looking for quotes, so this tactic puts you at the bottom of the stack with no access to a company’s best credits (or discounts).
Unless something crazy happens on your renewal, we suggest taking a three-year approach to finding an insurance company. You usually have to disclose the previous three years of insurance claims; when you do that, it shows the insurance companies quoting the policy that you are a consistent customer.
Make sure you include the cost of future endorsements into your quote comparison.
In the construction industry, we all too often see that cheap general liability insurance for contractors isn't really cheap after all. Typically, the insurance company comes out of the gate with a really low premium. The customer takes the policy, only to later discover that the cost of each additional insured endorsement is $150. In contrast, the competing insurance company that offered a higher initial quote is offers the same endorsement for $25. If the customer would have added up their expected amount of projects and endorsement requests for the year, the cheapest quote was not the quote that saved them the most money.
If you suspect that you will need a lot of certificates of insuranceor endorsements on those certificates, make sure you know the pricing of what you need beforehand, because you might be getting a worse deal after all the requests are added up.
If your insurance company is unable to accommodate project requirements, it could cost you a job.
You should know what kind of insurance company you are partnering with, because when push comes to shove and you need a tricky endorsement, having an insurance carrier that cannot comply might put you in a tricky situation.
For example, many small business contractor insurance companies do not offer umbrella policies to increase your limits of liability. This will become a huge problem if you ever want to get on a project requiring more limits, because most insurance companies will not write umbrellas over other insurance company liability policies (in the small business construction sector, at least).
Another common example is needing a CG 2037 additional insured with completed operations endorsement. If you do not know what that is, consider yourself lucky! Some insurance companies do not offer this (or charge a huge fee to obtain it). That’s bad, because many general contractors require it to work for them. If your insurance company can’t offer this endorsement, you could lose the job.
We recommend having a broker secure multiple quotes and complete a comparison for you.
Comparing insurance prices isn't as straightforward as one might think, especially in the construction trades. Sometimes it is easier to have a broker gather your information and secure you three or four quotes from the companies that fit your requirements and threshold for risk. Ultimately, there are tons of insurance brokers out there. Finding one that aligns with your values and expectations will provide you great benefits for years to come.
If you need help finding and comparing insurance quotes to get the best deal for your contractor business, let us know! You can either get started by getting an instant online quote, or you can call us at (918) 664-7100 to speak with an expert right away.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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