When you run your own construction business, you need to mind your cash flow. More available cash means more opportunities to reinvest in your company, more emergency funds, and more capital for growth. So you keep an eye on your expenses, and save wherever you can. But skimping on your contractor insurance might be a big mistake. Going for the cheapest or bare-bones insurance coverage could actually cost you more than you ever imagined. Here are the hidden costs of “cheap” insurance.
Low Premiums could come with Big Fees
A broker or insurance carrier may lure you in with promises of rock bottom premium rates, then charge you for every single certificate or additional insured endorsement. These requests could go for as much as $150 a pop. Suddenly, the discount premium you were promised is costing you big. Read the policy and understand exactly what you are getting. The low premium rate may come at a big cost down the road.
You could be Underinsured
What exactly are you getting for your low, low cost insurance premiums? Bare-bones coverage leaves you exposed, and your business at risk. This is a big problem for many business owners; as many as 75% of U.S. small businesses are underinsured. And, if faced with an uncovered loss, most of these business owners will never recover.
Consider this: after a major disaster, 4 out of 10 small business owners are never able to reopen their doors. Will your cheap policy help you recover after a disaster? Read your policy and make sure you understand exactly what coverage you are paying for.
Your Claim Payouts may take too long
As a contractor, time is of the essence. Let’s say you are in an auto accident in your work truck. The truck takes a beating, and needs to go to the shop for repairs. You have to rent a vehicle to transport you and your tools to the job site, and you pay for the rental out of your own pocket so you can get back to work.
The longer it takes for you to get reimbursed for your claim, the more of your business cash flow goes down the drain. You hadn’t anticipated this rental expense as part of your project costs, and now your profits have been minimized. And you are still waiting for the reimbursement check to come.
You may not even be Insured at all
Terrifying but true: you may not even have insurance coverage at all. The U.S. Government Accountability Office has identified more than 144 fake insurers nationwide, leaving more than 200,000 policyholders holding the check for $252 million in unpaid claims.
When you go for the rock bottom price, you may be getting even less than what you’ve paid for: you may be getting no insurance coverage at all. Research your provider before purchasing a policy. Your state’s department of insurance will provide information such as an insurance provider’s status and complaint history.
While you are doing some due diligence, make sure the broker you’re purchasing through is reputable as well. Unfortunately, there have been instances of brokers taking premium payments to fund their own lavish lifestyles, instead of forwarding the funds to the carrier to purchase a policy. These crimes, while rare, leave victims uninsured and exposed to serious liability risks. Every industry may have some bad apples, and that includes the insurance industry, too.
The Devil is in the Details
We know that reading through an exclusion section of an insurance policy doesn’t sound very exciting, but the devil really is in the details sometimes. To keep premiums low and attractive, carriers have sliced and diced coverage, and that may include an exclusion that impacts you.
Are you a painter who routinely sprays the exterior of buildings? Make sure your policy doesn’t contain an overspray exclusion.
Are you a plumber that solders quite a bit of pipe? Your policy would be lacking if it contained a heated device exclusion.
The insurance policy that comes at the rock-bottom premium price may seem like a great deal, but not when your claim gets declined because of a policy exclusion.
How to Save on your Contractor Insurance Rates
What’s a construction business owner to do? You don’t want to overpay for insurance, but you want to protect your business and know that you can count on your provider.
There are ways you can save on your premiums, so you can carry quality insurance coverage and still put cash in your pocket.
- Increase your deductibles to lower your premiums.
- Pay your premiums up front.
- Combine multiple policies with the same provider.
- Maintain consistent coverage.
(Psst: We’ve got even more tips on how get lower rates on your contractor insurance, so read our blog post for more details on this topic.)
A smart construction business owner knows the difference between a good deal and a too-good-to-be-true deal. Don’t put your business on the line in order to save a few bucks on your contractor insurance policies. Sometimes, you get what you pay for, and the rock-bottom price could end up costing you much more in the long run.