Construction Insurance Survival Guide

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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.

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5 Ways to Get Lower Rates on Your Small Business Insurance

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No matter what kind of business you own, it is at risk. You can be a one-man (or woman) operation, or have a single employee who helps you you operate out of your home. From franchise owners to small and medium sized business owners, business insurance is the key to survival. But that doesn’t mean you have to overpay for this critical coverage.
Here are five ways to get lower rates without sacrificing the quality of your insurance coverage:

1. Review Your Business’ Current Insurance Policies

How up-to-date are the policies that you already carry?

  • If you have had changes to your employee roster, you could be able to save on workers’ comp insurance.
  • Your commercial auto policy may be cheaper if you have sold vehicles or lost employees with less-than-stellar driving records.
  • Have you moved to a new location, or sold office equipment? Your commercial property insurance rates could have changed for the better.

You may be able to uncover substantial savings on your insurance policies simply by keeping them updated.

Examine your existing policies or talk with your insurance broker to see if changes in your business could mean a lower rate on your existing coverage.

2. Increase Your Deductible Amounts

Want to save money on your insurance premiums? Increasing your deductibles is a tactic many business owners use in order to lower their premiums and increase their available cash flow.

Before you increase your deductibles, however, be sure that your business can afford the higher amounts in the event of a claim. The reason you carry insurance in the first place is to protect you from the high costs of accidents, injuries, lawsuits, and unforeseen incidents that could devastate your business. If you have chosen a deductible that is completely unaffordable, your business is still at risk.

If you don’t have the resources available to cover the increased costs of your deductibles, your insurance policy isn’t protecting your business.

If you have enough funds set aside to pay for increased amount of your deductibles, raising them can be an easy way to reduce your premium rates.

3. Don’t Let Business Insurance Coverage Lapse

One of the most important things a business owner can do is to select the right policies to protect their business, and then maintain that protection. Letting coverage lapse during an off-season or slow time may sound like a good idea at the time, but it won’t save you any money.

When you have no-lapse coverage for your business, many insurance companies will offer you a discount on premiums.

If you have a prior cancellation for non-payment on a policy, you may find yourself ineligible for coverage. If you can get coverage, a history of dropping policies and picking them back up again can flag your business as high-risk, leading to higher premiums in the future.

If you get in a tight spot and need to prioritize your business expenditures, don’t skip payments or temporarily drop insurance policies. Instead, contact your insurance broker to look for other ways to save on your business coverage rates.

4. Avoid Small Claims

Don’t sweat the small stuff. Your past claims history is a major factor for determining your insurance premiums. And if your business has had several small claims, it can signal a larger risk than if you had one large claim. The more risky your business appears, the higher your premium amounts will be.

If you have a minor incident that your business can afford to pay for out of pocket, it could be beneficial to absorb that small loss and save your insurance for a larger claim. You can check out this blog we wrote for some tips on how small businesses can avoid insurance claims.

5. Combine Coverage

Your business is worth protecting from every possible angle. And most business owners find that they need more than one policy in order to fully defend themselves from the potential risks that could financially cripple their companies.

Some of the more common risks to your business, and the average cost to deal with them, include:

  • 40% of businesses are likely to face a property or general liability claim.
  • A general liability claim can average $75,000 to defend and settle.
  • 20% of business owners will face burglary or theft.
  • The average cost of a burglary claim is $8,000.
  • 10% of businesses will face a fire claim.
  • The average cost of a fire claim is $35,000.
  • 5% of businesses will face claims for vehicle accidents.
  • A vehicle accident claim can average $45,000 for your business.

General liability may be the foundation policy for your business, but it won’t protect you from auto accidents, property damage from fire, burglary, or theft.

Insurance companies recognize that you will need more than one policy to completely protect your business, and most will offer a discount to you for combining (bundling) your coverage. Combine your general liability policy with commercial auto, for example, an you could receive a discount on both.

Business insurance is a necessary part of doing business. But you can get the best coverage and protection possible for your business without overpaying for it.

To keep your rates affordable, remember…

  • Keep your policies up to date
  • Don’t let your coverage lapse
  • Avoid making small claims if you can afford to take care of them yourself
  • Increase your deductibles if you can afford them
  • Combine multiple policies to get the lowest rates

How to Build a Construction Business With Your Spouse (and Stay Married)

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Starting your own construction business is no easy feat. And if you want to build a construction business with your spouse, there is even more on the line. Starting a business with your spouse can have its benefits and drawbacks, so it’s important to start with a solid foundation. Here’s your survival guide to starting a contractor or construction business with your spouse, without sacrificing your marriage.

Agree on an Exit Strategy (or lack of one)

It may sound strange to talk about the end of your business before it has even begun, but defining an exit strategy is the cornerstone of any business partnership. Where do you want your business to go?

You are guaranteed to run into issues down the road if one of you has been working toward a modest, mellow local venture, while the other has been dreaming of a multi-million dollar firm and an IPO. Verbalize and shake hands on a common goal right from the start.

Discuss your Risk Tolerance

When a married couple is creating a business together, all of the financial eggs are likely to be sitting in one basket. It’s important to be on the same page about the amount of risk you are comfortable taking.

Do you want a slow and steady pattern of growth? How much debt are you comfortable holding? Risk tolerance is about more than just determining how much you can money you can afford to tie up into the business, or even potentially lose… it is also knowing about your emotional ability to handle risk, as well.

Have an Emergency Fund

Cash flow can be one of the biggest struggles a new business has to face. Whether you are an electrician, handyman, plumber, or general contractor you’ll likely have to pay for materials, supplies, equipment purchases or rentals, and labor before you can complete a project and collect a paycheck.

Be sure you have enough cash flow and a healthy credit line to get you through these early days, and keep an emergency fund set aside just in case.

Set up Separate Accounts

You may be blurring the line between business and personal in many areas by going into business with your spouse, but one area that should be kept completely separate is your banking accounts. (No, not your and your spouses…) According to the Entreprenuer.com, a separate business bank account not only provides your business with credibility, it also reduces your personal liability, and helps you better manage bills, payments, and taxes.

Separate business and personal banking accounts will help you and your spouse to better manage your overall financial picture and reduce the likelihood of business-finance stress impacting your personal lives.

Know Who You’re Working With

You and your spouse are two different people with two different personality types. If you want to lessen conflicts in your (shared) workspace, it can be tremendously helpful to know how the other person thinks and acts according to their personality type. The Myers-Briggs Personality Test is one of the most-used psychological instruments to help people determine and understand their personality type.

When you are open to the fact that your spouse and business partner interprets information and sees the world in a different manner than you do, it makes it much easier to understand why you don’t always see eye to eye on business (and personal) decisions every time.

Define and Divide

Not only do you and your spouse/ business partner have different personality types, you have different professional strengths, as well. Take some time to define and divide job responsibilities between the two of you. Obviously, you are starting a construction business because you have experience and expertise in a specific trade. But what about the business operations? Are you better with finance, taxes, and numbers, while your spouse has a knack for customer service and marketing? Take over the role of accountant and let your spouse wine-and-dine potential clients, handle your social media marketing, contractor insurance, and website setup.

Along the same vein, try to allow the other person to handle their own part of the business without too much interference. If you are type A, like many successful and driven business owners, you may have a hard time letting go of the reins. Try to walk away and trust your spouse to rise to the occasion.

This define and divide mentality will also work well with your home life, too. If you are both putting in long hours trying to build up your business, dividing the personal responsibilities at home will help keep your personal life in harmony, as well.

Create a Work Space

If you are bootstrapping your new operation, make sure there is enough space for you and your spouse/ business partner to be working in the home office at the same time. If at all possible use a spare room or distant corner of the house as your ‘office.’ Keep business in the ‘office,’ and your family time and personal relationship out of it.

You may also consider a co-working space. Shared workspaces are the latest trend for start-ups and small businesses. With a co-working space, you rent and share a communal office with other start-up and telecommuting professionals. It’s a great way to get the community and collaboration of an office space, without paying the overhead of renting out an actual office building.

Draw the Line

Speaking of space, if you and your spouse want to succeed at a joint business venture without sacrificing your marriage, you will need to create some. Draw the line between work and personal lives. Set office hours, and try to keep work within the confines of those hours. Set aside a date night or family day where the focus is on your relationship and personal lives, and not on work discussions. Schedule family time, relationship time, and vacation time to make sure it happens. If it is all work and no play for the both of you, business success may come at the high price of sacrificing your personal relationship.

Starting a construction business with your spouse can be many things: it can be rewarding, challenging, and give you the freedom to take your skill at a trade and turn it into economic independence. Working together can bring you and your spouse closer as you share a common goal, but it also has the potential to demolish the best of relationships. Set yourself up for success by making sure you are both on the same page about the business before you begin, and you can build a better business and a stronger relationship, too.

Easy Ways Small Businesses Can Avoid General Liability Claims

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If a customer trips on your carpet, slips on a wet floor, is injured on your equipment, or feels offended by your social media efforts, they could bring a lawsuit against your business. There are so many potential risks to your business for a lawsuit that you probably could come up with ten just by looking around you right at this very moment.

Whether your business is at fault or not, the cost of your legal defense (and possible settlement) can add up fast.

General liability insurance covers the cost of legal expenses if your business is sued by a third-party (non-employee). The types of lawsuits that general liability covers can include:

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

The average cost of a slip and fall claim for a small business is $20,000. And that’s just one small incident, one wet spot on a floor, one spilled beverage. (One dropped banana peel!) Compared to that figure, the cost of a general liability insurance premium is minimal.

You can keep the cost of your general liability insurance nice and low if you can avoid these incidents, and the resulting claims, from occurring in the first place.

Here are some ways your business can avoid a general liability claim.

Safety First

Some businesses are riskier than others. But putting safety first is always a good idea, no matter what industry you are in. The safer you make your workplace, the less you have to worry about causing injury or harm to someone.

  • Keep up to date on the safety standards for your industry, equipment, or products.
  • Maintain a clean working environment, free from clutter, fire hazards, and trip/fall hazards.
  • Make sure that exits are clearly marked, and that there is adequate lighting during operating hours.

Making workplace safety a priority will reduce the risk of an accident that can injure a customer or other third-party.

Train Employees

Training your employees in appropriate workplace safety and conduct can go a long way towards preventing a lawsuit. Even if you are running a business out of your home, with one part-time employee, you can benefit from training her/him to prevent accidents, damages, and lawsuits. If you have employees, you are responsible for their actions, and words, at the workplace.

When you have an employee handling your social media accounts, marketing efforts, or acting as a representative of your business, you will want to make sure they are up to speed on the next tip, which is…

Market Yourself with Care

In today’s digital marketing world, where every business has a website, social media accounts, and access to Facebook ads, it can be very easy to make a costly marketing mistake. If you inadvertently damage the reputation of a competitor on your blog, podcast, or social media accounts, you could be facing a lawsuit for libel (written defamatory statement) or slander (spoken defamatory statement). Whether you manage your marketing efforts yourself, or have an employee or service do it for you, make sure you don’t try to boost yourself up by tearing a competitor down.

By the way, speaking badly of clients is just as dangerous as talking down the competition. If you say (or write) something that could cause reputational harm to a client, you could be facing a lawsuit.

Avoid Copyright Claims

Another way you can avoid a lawsuit as the result of your marketing efforts is to steer clear from using other people’s images or names without consent. Celebrities may be public figures, but that doesn’t mean you have the right to use their name or photos without permission. While it may be fun to put a pic of your favorite teen pop-queen on your company’s blog post, complete with a funny caption using someone’s image without permission can send you straight to court to defend a copyright claim.

Make sure that you have permission to use the images, music, videos, writing, and content that you use for business purposes.

Use Special Care with Customer Property

You may operate a mobile auto detailing business, cleaning customer cars at their homes and offices. You may repair computers, watches, shoes, or furniture. Whatever your business, if you have customer property in your care, control, or custody, you could be liable for damage. If you are in a position to handle customer property, you need to create a procedure and policies for how to do so safely.

Proper procedures for handling customer property may include:

  • Documenting the condition in which you received the property.
  • Carefully handling property to reduce the risk of damage.
  • Deciding how and where property is stored when in your care.

Once you’ve determined the procedures for handling customer property, make sure your employees are trained and adhere to your policies.

Communicate Openly and Honestly

When you are providing a service or product for a customer, keep them in the loop as much as possible. Client’s who feel included in a conversation, listened to, and aware of what is happening are less likely to sue. Treat your clients with respect, keep the lines of communication open, and be honest in your interactions with them to reduce the chance of them feeling slighted (or damaged) by you and your business.

Reducing the risk of damage and harm to a customer, client, or other third-party person takes time, as well as some good old fashioned policies and procedures. But your efforts should payoff in the form of avoiding general liability claims for your business. The less claims you file, the lower your insurance premium rates will be, which is just good for your bottom line and your business.

Workers’ Compensation Insurance 101

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Workers’ comp is a special form of insurance coverage that protects your employees from the negative impact of an injury or illness that results from their job. If one of your employees trips over a stack of boxes in the storeroom, severely hurting themselves as they fall onto a hard cement floor, workers’ comp will pay for the expense of their medical bills and any wages lost as they recover.
And that means your employee won’t need to sue you in order to pay for their treatment or time off.

Workers’ comp helps protect your employees’ health and wellbeing, as well as your bottom line.

Workers’ Compensation Insurance 101

Here’s what you need to know about workers’ compensation insurance: why it exists, what it does, who it benefits, and whether or not you need this coverage for your small business.

A Brief History

Did you know that workers’ comp is one of the oldest insurance programs in our country? In the early 20th century, the industrial revolution was in full swing. Factories were popping up everywhere, and workers faced incredibly harsh work conditions. Workers who were injured needed a way to pay for their medical costs and would regularly sue their employers. Needless to say, trust between employers and employees was at an all time low.

In 1908, the first workers’ compensation law protecting federal employees was passed. From there, individual states began passing their own workers’ comp laws to further protect employees (and employers) from the damaging effects of lawsuits, unpaid medical bills, and a general air of mistrust.

Today, workers’ comp is required in nearly every state.

How it Works

As an employer, you pay into a workers’ comp State Fund. When an employee is injured or becomes ill, they will file a claim for benefits to pay for medical bills and missed time from work.

Even temporary or part-time workers are eligible for workers’ compensation benefits.

What does Workers’ Compensation Insurance Cover?

Workers’ comp coverage generally covers the following for employees who are injured or become sick at work:

  • Medical bills
  • Wages missed during recovery
  • Rehabilitation and ongoing care
  • Employee lawsuits
  • Funeral expenses and death benefits

It does not cover costs to you, the employer, from:

  • Hiring replacement workers
  • OSHA penalties and fines

Workers’ comp primarily benefits your employees. The benefit to you, as an employer, is the form of protection from lawsuits as well as penalties, fines, and even jail time (more on this in a bit).

Who Needs Workers’ Comp?

If you are a business owner or self-employed person who has one (or more) employee, you need workers’ comp.

Even if you work out of a home office, and pay a part-time employee to help you with the occasional filing, you need workers’ compensation. Your employee could easily slam a finger in a filing cabinet, have a run-in with the business end of a stapler, or trip over a pile of contracts left sitting on the floor.

If you have a part-time employee who helps set up your booth at the local Farmers’ Market every weekend so you can sell your handmade soaps, homebaked brownies, or garden fresh veggies… you need workers’ comp. Afterall, you never know when your helper may trip over a crate of carrots, or be injured setting up your booth.

There is no business that doesn’t pose at least a small risk to the health and wellbeing of an employee.

If you pay a worker to help you do your job or operate your business, you are required by law in nearly every state to carry workers’ comp coverage. And if it isn’t required, it is still a smart business move to protect yourself from lawsuits arising from an accident that leads to a worker injury.

How Much will Workers’ Comp Cost Me?

There are a number of factors that go into determining the cost of your annual workers’ comp insurance premiums. Your insurance carrier will consider:

  • Your industry classification
  • Your company’s history of work-related injuries (aka experience modification)
  • The size of your payroll

An insurance professional who specializes in business insurance can help you understand your specific costs, based on these (and other) factors.

What if I Don’t Carry Worker’s Comp?

You know that you should carry workers’ comp insurance. There is a very good chance that you are even required by law to carry it. But what happens if you don’t? The penalties for not carrying workers’ comp will depend on the specific laws of your state.

Consider the following penalties in the State of California, where failing to provide workers’ compensation coverage is a criminal offense:

  • This misdemeanor is punishable by a fine of not less than $10,000, and/ or
  • Imprisonment in the county jail for up to one year
  • Payment of all bills related to a worker’s injury or illness
  • Subject to civil action on behalf of the injured employee
  • Enforcement penalties of $1,500 per employee up to a maximum of $100,000

Trying to reduce your workers’ comp premiums by misstating an employee’s job duties, or misclassifying an employee, is considered fraud. Fraud of the workers’ comp system is taken seriously, and agencies such as state Departments of Insurance and local district attorney’s offices will work tirelessly to prosecute employers caught violating the law.

When it comes to workers’ compensation insurance, consider it a must-have policy if you pay any person to help you with your business. Workers’ comp not only benefits the employees who help keep your business running, it also protects you from expensive lawsuits, penalties, fines, and even criminal prosecution.

Small Business Insurance Checklist

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If you’re a small business owner, managing time and money becomes more important than ever. While you balance the needs of your company and home life, it can be tough to feel like there’s enough of either at the end of a hard day.

Now imagine throwing a costly and time-consuming court battle into the mix.

Don’t think it’ll happen to you?

Think again…

It’s the things you’d least expect that can take you down, like a customer who slips coming into your store during a rainstorm, or a seemingly innocent Facebook post that accidentally offends one of your followers to the point of legal action.

As your most valuable tools for success, you need to protect your time and money.

What’s the answer? Small business insurance, of course!

…but you already knew that.

The real question is, “How do I know what kind of business insurance I need?”

We’ve created this simple checklist containing the most common small business insurance products to help you review your company’s risk factors, and identify any gaping holes in your insurance coverage that could end up taking you down.

General Liability

 

We’ll go ahead and check this one off for you, because every business needs general liability Insurance (GL).

GL is the bare minimum protection you’d ever want if you’re running you own business. It covers a lot of the “core” risks you might face in the course of your day-to-day operations, such as personal injury, property damage.

How does GL protect your business?

Claims covered by your general liability policy would be covered by the insurance company, not your business. Costs covered might include:

  • Damages
  • Legal costs
  • Settlements
  • Judgements
  • Court Fees

When we say everyone needs general liability, we aren’t being dramatic. We’re living in a litigious society, and even the most behind-the-scenes business owners, like writers and graphic designers need some kind of insurance as a safety net.

Property Insurance

As the name indicates, this insurance protects any property your business owns. Buildings, fences, signs, and sheds, and any other structures are covered, as well as items you use to run your business, like office furniture, equipment, and machinery.

In some cases, coverage even extends to damage caused by fire and natural disasters, and can cover the cost of debris removal and cleanup.

Business Interruption Insurance

Are you covered in the event you can’t operate your business according to your regularly scheduled program?

If events beyond your control, such as a major grid malfunction, flood, earthquake, or other emergency prevent the running of your business, how will you earn money?

Business interruption insurance replaces your income if circumstances beyond your control shut your business down temporarily. It covers you while you manage the damage, and make the necessary repairs.

Business Owners Policy

If reading the prior 3 policy types and you find yourself thinking you need a combination of those, consider looking into a Business Owners Policy.

A BOP combines liability, property, business interruption, and potentially a few other coverages, into a singular policy for ease of use and premium discounts.

Workers’ Compensation

Got employees? You need workers’ compensation insurance.

In every state in the US (except Texas) your business needs to carry workers’ comp insurance to cover your employees, even if you only have one single, part-time employee working for you.

Here’s why:

Workers’ comp is there to protect you, and your employees, in case someone is injured or gets sick while doing their job. Slips, falls, and any other accident could mean lost wages, medical bills, and other related expenses for your employee.

 

 

Workers’ comp helps cover those costs.

Your business benefits from carrying workers’ comp too, since you won’t have to worry about going broke over a costly injury lawsuit if an employee is injured on the job.

If you think you’re off the hook because you only use independent contractors and freelancers to help you get the job done, think again. The rules that determine whether a person is an employee or contractor can be confusing, and it’s common for small business owners to accidentally misclassify contractors and employees, which can result in extremely expensive consequences.

Just because you write up a contract calling someone an independent contractor doesn’t necessarily make them one. Understand the difference between an employee and a contractor so you can avoid trouble legal and financial pain.

Commercial Auto

Do you use your personal vehicle for work?

Many small business owners do, and make the mistake of thinking their personal auto insurance will cover them while they’re running errands for business purposes.

Your personal auto coverage only goes so far.

If you or an employee encounter an accident while driving during the course of doing business, your personal coverage won’t do much to protect you. It could be as simple as dropping off a forgotten tray of food to a catering customer in your own car. Or letting your employee use your vehicle to make a coffee run.

All it takes is one distracted driver, texting teen, or hazardous object in the road to derail all your hard work if your business isn’t covered by commercial auto insurance.

Other Business Insurance

All the insurance types listed here are the primary lines small businesses typically carry to cover their assets. But others exits to compliment and fill in specialty gaps in the broad spectrum business insurance types outlined above.

For example:

  • Errors & Omissions (E&O)—for individuals in sensitive professional service industries, such as finance, law, and medicine. Protects against claims of inadequate work and negligence.
  • Cyber Liability—protection against damages resulting from data breaches and other digital, cyber security, and privacy issues. Becoming increasingly more necessary as more companies transact business online and store customer information in their database.
  • Umbrella Insurance—extra coverage above and beyond the maximum limit for traditional lines. An extra padding of coverage for your business.

While these insurance types aren’t thought of as the core products needed to protect against risk, they can be the costliest to overlook if you do need them for your business. If there’s any question in your mind, it’d be smart to chat with a broker who can help you sort out how much risk you face, and if your particular business merits extra coverage.

How many of the above business insurance policies do you currently carry?

If you’re looking back on this list and wondering if you might have some holes in your coverage, don’t wait. Ignoring the risks could cost you everything: Shore up your business defenses and make sure you have adequate insurance coverage for your business.

Big Construction Insurance Fails You Can Avoid

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We thought we’d round up a collection of this year’s biggest and best (worst?) stories of contractor insurance blunders. Some of these noteworthy reports are a case of a contractor just not thinking, like the TV celebrity who tops our list at #1. And others are simply cases of devious developers who got caught. So gather around and get comfy, because these are the biggest insurance frauds, fails, and cautionary tales that you will want to avoid in the coming year.

#1: TV “Master” Learns a License Lesson in Oregon

The Oregon Construction Contractors Board fined the star of Animal Planet’s popular show, Treehouse Masters, $5,000 for building a single-family treehouse. Pete Nelson, the owner of Washington based Nelson’s Treehouse and Supply, received the fine for building the arboreal “residence” without an Oregon contractor’s license. A spokesperson for Nelson’s company says they are licensed, bonded, and insured in the state of Washington, and had supplemental workers’ comp insurance for the project.

Nonetheless, if you are going to build in Oregon, take a lesson from the Master… be sure you have the right licenses, bonds, and construction insurance in place.

#2. Contractor Accused of Stealing Insurance Money from Seniors in Rhode Island

Some guys just can’t be trusted. A senior couple hired a contractor to help with home repairs, and got a bit more than they contracted for. The “smooth-talking” charlatan tore apart the elderly couple’s home, but failed to make any improvements. When an insurance check arrived in the mail, the contractor is accused of taking the money and running. A local investigative news team discovered this wasn’t his first attempt at criminal behavior either; five other victims have filed complaints about work that was negligent or never completed. They also found that the crooked contractor’s registration had been suspended earlier in the year by the contractor’s license board, something the victims apparently hadn’t been aware of.

#3: Contractor Gets Busted Allegedly Damaging Roof to Get the Repair

He may have thought he was getting high marks for creativity, but his criminal behavior only led to him being arrested, instead. A contractor in GA allegedly damaged the roof of a home “significantly,” and then solicited the homeowners to do the repairs on the damage he caused.

The scheme would have ended with insurance fraud, but the contractor was caught in his own trap first. What he didn’t realize was the home has been inspected three days earlier, and no damage was found at that time. His plan to scam the homeowners and the insurance company was an epic fail that lead him straight into a pair of handcuffs.

#4: Unregistered Roofer Faces Felony Jail Time for Failing to Provide Workers’ Comp

When your state requires workers’ compensation insurance, failing to provide it can mean more than just stiff fines. A Washington state roofing contractor who failed to provide workers’ comp for his employees had his contractor’s registration suspended. However, he continued to work for at least two customers after the suspension. When the contractor got caught, his penalty included jail time in addition to fines.

#5: Restoration Company Scams for Seasonal Storm Repairs

More than forty residential customers received insurance money for home repairs after seasonal storms damaged their homes in Indiana. Each contracted with a restoration company who fraudulently collected more than a quarter of a million dollars of insurance funds, but never completed a single repair. The contractor is now in jail, and facing a lawsuit filed by the Indiana Attorney General.

#6: Contractor Using Phony Bonds to Gain Contracts Faces Felonies and Fines

The owner of several construction companies was using forged documents, including security bonds, to win government contracts worth millions. Investigators say the contractor allegedly used the funds to buy jetskis, snowmobiles, and luxury vehicles. A lavish life of crime didn’t pay off for this contractor, who is being indicted on five counts of wire fraud, four counts of transactional money laundering, two counts of mail fraud, and two counts of concealment of bankruptcy assets.

#7: California Contractor Pleads Guilty To Workers’ Comp Fraud

Workers’ comp insurance is required by law in California, where one roofing contractor attempted to save some cash by misclassifying employees and under-reporting his payroll to lower his premium rates. The scheme caught up to the Marin county contractor, who pled guilty to workers’ compensation insurance premium fraud, unemployment insurance fraud, and filing false income tax returns for the nearly $1.4 million in combined losses.

#8: Misclassification Scheme Misfires for Contractor

A Pennsylvania drywall contractor has been busted for allegedly cooking up a scheme to avoid paying taxes and workers’ comp insurance premiums. In an elaborate attempt to save a few bucks on worker’s comp, the contractor paid out nearly $900,000 to middlemen who then paid off-the-books cash to his employees. The under-the-table scam backfired, and the contractor is now facing charges from the District Attorney.

#9: California Contractor Found Guilty of Workers’ Comp Fraud and Misclassification

A contractor in Vacaville, California learned the hard way that calling your employee an “independent contractor” doesn’t necessarily make them one. When the electrical contractor took an unlicensed worker out to do a job, he found himself facing charges of workers’ compensation fraud for not having insurance for his “employee.”

#10: Man Sentenced in $100 Million Fraudulent Construction Surety Bond Scheme

A Florida man operating a multi-million dollar surety bond fraud scheme was sentenced to prison, but not before his efforts led to construction delays and financial losses all across the country for legitimate construction businesses. Construction firms who unwittingly purchased the fraudulent bonds lost hundreds of thousands of dollars in premiums paid to the scheming surety scammer.

From small scale schemes to big time fraud, to a case of mistaken license requirements, construction insurance fails lit up our newsfeed this past year. Luckily, each story can teach a valuable lesson for the rest of us. Keep up to date on licenses, bonds, and insurance requirements, and always verify that companies providing insurance and bonds to you are legitimate.

Subcontractor Vs. Employee: 7 Signs Your Sub Might Be Classified Wrong

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Are you misclassifying your employees? If you have subcontractors or independent contractors working for you, you may want to make sure they aren’t really employees wearing independent contractor labels, because misclassifying employees can mean big trouble for your business. If an independent contractor working for you feels they have been misclassified, the results could be a lawsuit that finds you owing back taxes, unpaid benefits, and overtime wages.
It doesn’t matter what your contract or written agreement with your subcontractors says, here are seven signs that your sub may actually be an employee.

  1. You supervise the work, which must be done exactly per protocol.
  2. You provide the tools, equipment, and training to get the job done.
  3. Your contractor only works for your company, and has no work outside of your projects.
  4. You and your contractor have been working together for years, with no end date in sight.
  5. You set the working hours and days.
  6. Your contractor receives an hourly pay.
  7. The work provided by your contractor is an integral part of your business.

If more than one of these signs describes your relationship with your subcontractors, watch out! You may actually have a misclassified employee working for you. And you are definitely going to want to keep reading…

Contractor vs Employee: What the Government has to say

Trying to determine the employee-contractor relationship can be tricky, and even the IRS and Department of Labor will tell you there are different factors to consider here.

According to the IRS, the facts that determine the degree of independence with your contractors fall into three categories: behavioral, financial, and relationship factors.

Behavioral Considerations

An employer will generally determine the working behavior of an employee. That means telling an employee where, when, and how to do their work. Instructions given to an employee could include

  • When and where to do the work
  • What tools and equipment to use
  • Where to purchase supplies
  • What sequence or order to follow while doing work

The more detailed the instructions you give on how the work should be done, the more likely your worker is an employee. Less detailed instruction on exactly how to complete a task, and more control given to the worker, is a sign of an independent contractor.

A real subcontractor will be given a job to do, and will have control over when and how the job gets done.

Financial Considerations

Employees and independent contractors will have different financial considerations. An employee is typically paid on an hourly basis, while a contractor generally will be paid per project or a flat fee. This “method of payment” is not the only financial consideration, however. Your subcontractor may bill you hourly and still not be an employee.

Another financial consideration is the worker’s investment in the equipment needed to complete the job. Independent contractors will often times have a significant investment in the equipment they use, and an employee’s equipment is generally provided to him. This is another gray area, because your workers may have invested a good deal of their own money on tools that they use on a construction job, but still be an employee and not an independent contractor.

What’s not gray is the financial consideration of “economic dependence.” According to the Department of Labor, economic dependence is one of the largest factors determining if a worker is an employee or contractor. “If the worker is economically dependent on the employer, then the worker is an employee. If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor.”

If you have a subcontractor who does work for you, but also works on other projects outside of your projects for other general contractors, that is an independent contractor who is in business for himself. But if your subcontractor only works on your projects and is economically dependent on you, he is most likely a misclassified employee.

Relationship Considerations

The final factors that determine an employee vs contractor classification have to do with the relationship between you and your worker.

If a worker provides work that is a key element of your business, they may be an employee. According to the Department of Labor, “If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer… Work can be integral to a business even if the work is just one component of the business and/or is performed by hundreds or thousands of other workers.”

If you frame residential homes, the work of a carpenter is integral to your business. That means your carpenter is more likely to be an employee. If you contract with a software company, however, to create bid tracking software, that work is not integral to your business. That signifies an independent contractor relationship, instead.

Another consideration between you and your worker is the permanence of your relationship. A true independent contractor may work with you for specific projects or a period of time. According to the IRS, if you hire a worker with the expectation that the relationship may continue indefinitely, you may have an employee on your hands.

If your worker has only done work for you for a number of years, and you expect them to continue to only work with you indefinitely, that is an employee relationship. However, if your worker has done work with many other contractors over the years, negotiates rates for each project with you, and is able to turn down work for any reason, this signifies an independent contractor.

The Insurance Problems of Misclassifying Employees

Your insurance policy has very clear guidelines about how you should classify those working for you, the insurance they will need to carry, and how your insurance will protect you in the case of a mishap. Your general liability policy probably has a subcontractor coverage exclusion stating that the work subs perform is their own. That means their work may not be covered under your policy. So if you are using subcontractors, they will need their own general liability policy.

Similarly with workers’ compensation insurance, carriers care very much about the role the individual has in your company. If you have actual employees that are being treated like subcontractors, you could be facing audits, hefty bills from your workers’ comp carrier, or even fraud allegations if you don’t include their payroll in your totals.

Why you should care about subcontractor and employee misclassification

Employee misclassification is a top priority for the Labor Department, because misclassified employees aren’t covered by unemployment insurance, workers’ compensation insurance, and other workplace regulations such as overtime pay. If you have been trying to cut corners and save on insurance, taxes, and other employee costs by contracting with workers as “independent contractors,” you need to be sure you are doing so legally.

Your construction business is at risk for a lawsuit if you are misclassifying employees, and that can cost you big time in the long run. A written contract won’t protect you if your worker is actually an employee, so make sure you have considered all of the factors involved with your workers to make sure you aren’t giving an actual (misclassified) employee a raw deal.

Top 20 Business Resources for Landscapers

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Where do you get your landscaping industry news, ideas, and inspiration? If you are like us, keeping up to date on the latest industry trends is a must for your business. And it’s never been easier to get information delivered right to your green fingertips. Digital publications, blogs, and social media can serve up the latest landscaping trends instantly to your smartphone and tablet, so you can stay in the loop.

Whether you are a one-man lawn care service or a thriving landscape architecture firm– or rooted someplace between the two– these landscaping and small business resources will keep you in-the-know.

From distinguished landscaping organizations to small business advice and even inspiring backyard gardening blogs, here are our top picks for the resources landscaping professional should know about:

Professional Landscaping Organizations and Associations

Join an association or organization to help you get to the top of your field, cultivate your own business, and connect with other like-minded professionals.

1. American Society of Landscape Architects

The American Society of Landscape Architects (ASLA) is a national professional association for landscape architects. Members get access to professional resources and tools to help expand their business, and connections with other architectural landscape professionals through annual meetings and Expos. You don’t have to be a member to enjoy the award-winning Landscape Architecture Magazine, so be sure to check it out.

You can access the mag through print or digital subscriptions, read the blog online, and follow ASLA on Twitter and Facebook.

2. Association of Professional Landscape Designers

The Association of Professional Landscape Designers (APLD) is an international organization that has been promoting the profession of landscape design since 1989. APLD has an international certification program for landscape designers, tools to help you develop and promote your business, and workshops and seminars for members.

Check out the APLD industry resources, and follow APLD on Twitter and Facebook.

3. National Association of Landscape Professionals

The National Association of Landscape Professionals (NALP) is a national organization built by the collaboration of landscape and lawn care industry professionals. NALP encourages peer-to-peer sharing on a national scale, and provides educational resources, industry advocacy, and best practices to help you grow your business.

Read the NALP blog for landscape industry professionals, which covers industry news as well as business advice. Follow NALP on Twitter and Facebook.

4. National Association of Professional Women in Landscape

The National Association of Professional Women in Landscape (NAPWL) was formed to equip women in the landscaping industry with more access, education, and alliances to grow their careers as landscape architects, designers, contractors, engineers, and business owners. The landscaping industry has traditionally been a male-dominated field, but through NAPWL women in the industry can connect with one another to collaborate, learn, and succeed in their careers.

Follow NAPWL on Twitter and Facebook.

5. Irrigation Association

The Irrigation Association and members are dedicated to promoting efficient irrigation and long-term sustainability of water resources. The Irrigation Association members include irrigation equipment and system manufacturers, dealers, distributors, designers, consultants, contractors and end users interested in efficient irrigation technologies, products and services. Water management professionals in agriculture, landscape, and golf can network with other professionals, get education and certifications that give them a competitive edge, and access to industry alerts and newsletters.

Follow the IA on Twitter and Facebook.

6. Ecological Landscape Alliance

The Ecological Landscape Alliance (ELA) is a nonprofit, organization of professionals, businesses and members who believe in using environmentally safe and beneficial landscape practices. If ecological landscaping is your thing, the ELA is for you. The ELA advocates for responsible and sustainable landscaping and horticultural practices for professionals and the public.

Read ELA newsletters for the latest in ecological landscaping, and follow ELA on Twitter and Facebook.

 

Can’t-miss Landscaping Publications

These great digital and print publications are tailored specifically for landscape professionals, so be sure to subscribe, read their digital editions online, and follow their social media accounts.

7. Pro Landscaper Magazine

Contractors, garden designers, and landscaping professionals look to Pro Landscaper Magazine for monthly industry updates and breaking industry news. Subscribers have access to a digital and print edition, as well as an app. Based out of England, but with valuable information for professionals on both sides of the pond.

Follow Pro Landscaper on Twitter and Facebook.

8. Turf Magazine

Green industry company owners and landscaping professionals will want to dig in to Turf Magazine to stay up-to-date on industry trends, technical issues, and business best practices. From irrigation to insecticide information, tips for growing great grass and more, Turf Magazine is a must-read.

Get great articles and resources online, subscribe to the digital edition, and follow Turf Magazine on Twitter and Facebook.

9. Landscape Management

Landscape Management is focused on helping green industry professionals grow their landscape and lawn care businesses with great articles and information to take readers to the next level of their career. The Landscape Management blog is full of share-worthy information, and the digital editions of the magazine serves up helpful tips on turf maintenance, landscape and lawncare, smart water management, and more. Even more exciting, Landscape Management is FREE for landscapers!

Follow Landscape Management on Twitter and Facebook.

10. Total Landscape Care

Landscaping industry professionals look to Total Landscape Care for design ideas, landscape maintenance and management tips, industry news, and product information. Contractor interviews and features on landscaping business tips will help you grow your own business to the next level. TLC takes a how-to approach to help landscaping pros solve problems with innovative landscaping ideas, and to help pros run their businesses with more profitability. Check out the reader-submitted before-and-after landscaping project photos for inspiration you can use on your next project.

Follow TLC magazine on Twitter and Facebook.

Best Small Business Blogs

Running any business is hard work, but these business blogs and resources can help you dig in deep and plant the seeds for success.

11. Small Business Association

The Small Business Association (SBA) is your your one-stop shop for information pertaining to starting and running a small business. The SBA learning center has online courses to help you start, manage, finance, and market your business. SBA blogs cover topics that range from projecting startup profits, to financial tools for your business, tax planning advice, and even franchise advice.

Don’t overlook this vital resource for your business, and be sure to follow the SBA on Twitter and Facebook.

12. Forbes Magazine

Forbes magazine offers up business, financial, and entrepreneurial news that any business owner will find compelling. From general business news to targeted articles about the landscaping industry, Forbes magazine is a must-read for the savvy entrepreneur.

Be sure to follow Forbes on Twitter and Facebook.

13. Entrepreneur Magazine

Along with advice on starting a business, marketing, finance, and growth strategies, Entrepreneur magazine also serves up a healthy dose of business information for landscaping professionals, including lawn care franchise advice and articles aimed at landscaping business owners. A subscription is a totally justifiable business expense, but there’s plenty of free content available online, too.

Don’t forget to follow Entrepreneur on Twitter and Facebook.

14. Citizens General Blog

We have to indulge in a bit of shameless self-promotion for one moment, because our blog is aimed at helping contractors, including landscaping and lawncare professionals, build and protect the best business possible. That starts with contractor insurance. Citizens General specializes in construction and small artisan trade insurance exclusively, so we know exactly which insurance products will be in the best interest of your landscaping business.

Follow our blog for the information you need to protect the landscaping business you’re working so hard to grow. And check us out on Twitter and Facebook, where we keep you up to date on insurance, contractor, and landscaping industry trends.

 

Must-read Landscaping Blogs, Tweets, and More:

Don’t miss out on these landscaping and gardening blogs and social accounts that will keep you entertained, informed, and overall awestruck with amazingness.

15. LandscapingNetwork.com

An independent resource for the residential landscaping industry, Landscaping Network.com has insights and inspiration for pros and the public. You will enjoy the gorgeous images of landscaping design ideas, and you can submit your own project pics to be featured on the popular site.

Don’t forget to connect with Landscaping Network on Twitter and their insanely popular Facebook page.

16. Garden Rant

Hands down one of the most beloved gardening blogs online, Garden Rant has been around for nearly a decade and amassed a cult-like following of fans that includes garden bloggers, garden writers and editors, and landscaping and nursery professionals. Great information, green inspiration, excellent witty writing, and, of course, the occasional rant.

After you’ve read the blog, be sure to follow Garden Rant on Twitter and Facebook.

17. Garden Therapy

This DIY blog may not look like something you’d find on a list of professional landscaping resources, but hear us out… because over 11k Twitter followers are paying attention to what Stephanie over at Garden Therapy has to say about backyard gardening, weekend projects, and other DIY goodness. That means your customers may be looking to Garden Therapy for ideas to implement in their own backyards. At the very least, Garden Therapy may provide some inspiration for your own landscaping business blog. It’s definitely worth a read.

Be sure to join the legion of fans connecting with Garden Therapy on Twitter and Facebook.

18. Grounded Design

Thomas Rainer is the landscape architect behind Grounded Design, a self-described “horticultural futurist” and author of Planting in a Post-Wild World. When you combine landscape architecture and good writing, you get a blog that commands attention. For example, Rainer praises the planting season of late spring with lyrical prose such as: “In May we are gardening gods. This is the month where the fullness of spring meets the opening of summer, creating a moment in time where the garden in our heads matches reality. May is the month for horticultural hubris. For a few weeks, we are the masters of our plots. Like Midas, all we touch turns to flower.” Feeling empowered yet?

After you check out the blog, be sure to follow Grounded Design on Twitter.

19. Landscape Hub

Who doesn’t love a good industry forum? Landscape Hub is a (free) member run network open to anyone within the landscape and horticultural industry. In addition to the forum, Landscape Hub also offers member submitted blogs, articles, and a photo gallery.

Connect with Landscape Hub on Twitter and Facebook.

20. ValleyCrest

This is the second time the ValleyCrest Takes On blog has made an appearance on our “top blogs to follow” list, because their well written water-management focused blogs are excellent: well written and informative. Commercial landscape company ValleyCrest has multiple writers contributing to their blog, and their solutions and tips for water conservation and drought resistant landscaping are invaluable to professionals.

Read ValleyCrest Takes On, and connect with them on Twitter and Facebook.

Our Top 20 picks are sure to keep you up-to-date, connected, and inspired as you grow your landscaping business. We’ve compiled all of these resources together into one Landscaping Resources List over at our Citizens General Twitter page to make it even easier for you to follow and connect with our Top 20 picks.

How to Find Out What’s Covered In Your Builders Risk Policy

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Insuring your construction project with a builders risk policy is crucial to protecting your business. And just like your projects, no two policies are the same. So it is important to know what’s covered in your policy for any given project to avoid unexpected surprises if you need to file a claim.

Standard Builders Risk Policies are anything but…

Why isn’t there one standard policy to protect your project? The coverage on a builders risk policy, also known as course of construction, varies greatly because no two projects are ever the same. Each project will have it’s own set of risks and exposures that the coverage is tailored to match.

The estimated completed value of each project is used as the limit of insurance, and the coverage is typically written on an all risks basis (more on that later) which covers the construction site property, as well as off-site storage locations and property in transit. These ever changing variables from project to project make this a unique type of coverage where a “standardized” policy would be an exception, not the rule.

Even though your coverage will be different depending on the variances from project to project there are still some pretty general things that will be outlined in your policy. Here’s what you should look for when reading the policy fine print for your latest project.

Who are the Covered Parties?

General contractors or owner/ developers are typically the person who purchases a course of construction policy. No matter who sets up the coverage, however, the covered parties should include:

  • Project owner
  • General contractors
  • All subcontractors
  • The Bank (if there is a loan issued)

The covered parties should be included in the policy as “named insureds.” General contractors and subcontractors have just as much to lose in an unfortunate event as a building owner during the course of construction, and they have a valid insurable interest as their materials and labor go into the project.

Another reason all parties with an interest in the project should be included in the policy is to prevent the insurer from attempting to recover losses that may be the result of a subcontractor or general contractor negligence.

The project bid documents and contract should clearly state who is the responsible party for obtaining the policy, who is responsible for paying deductibles, and a formula for determining when one of the parties is liable for a deductible.

What is the covered property?

Your policy’s description of covered property will normally include more than the building or structure itself. Your covered property will most likely also include materials, supplies, and fixtures as well, and may be extended to include the machinery and equipment needed to complete the job. Depending on your project and your individual policy, your “property” may also include:

  • Temporary work structures
  • Office trailers
  • Fences
  • Sidewalks and other hardscapes
  • Landscaping
  • Scaffolding

Don’t assume that everything stored on the project site or used off-site is covered, read your policy carefully to see exactly what your covered property includes on each and every project.

Are soft costs included?

Soft costs are expenses that may be lost during the time it takes to repair, replace, and move forward with a project if the worst-case scenario occurs. Costs associated with the project delay may include the costs of “business interruption.”

These soft costs may include

  • Insurance premiums for builders risk and possibly general liability coverage
  • Legal fees
  • Construction loan interest
  • Real estate and property taxes for the project site
  • Loss of rental income
  • Advertising expenses

Every policy is different, and soft costs may not be included in your policy without supplemental coverage. Read your policy, and consult with your insurance carrier to be sure.

What’s not covered in your policy?

A course of construction policy is typically written on an “all risk” basis, meaning everything that could go wrong is covered unless your policy specifically excludes it. If your coverage is “all risk,” be sure you know what your specific policy’s exclusions are. What’s not covered in your policy is often as important as what is.

Common exclusions found on a builders risk policy include intentional damage, wear and tear, acts of terrorism, nuclear risks, war or military action, and even some acts of nature. Your policy may exclude floods or earthquakes, for example. Your insurance carrier may offer you supplemental coverage for some of the excluded perils for additional protection, so if your project is located in a flood zone you won’t be left out to dry.

What are your limits?

The builders risk policy limits will be written for the full value of the completed construction project, and should include soft costs and the materials and supplies included as part of your covered property.

When is coverage terminated?

Coverage can be written for 3-months, 6-months, 12-months, or longer terms. Most policies will include a specific provision for the termination of coverage. If your policy contains an occupancy clause, that means that coverage is terminated when someone takes whole or partial occupancy of the project site. Other termination clauses in your policy may include:

  • Formal acceptance by owner.
  • Building is put to intended use.
  • Policy cancellation or expiration.

Keeping track of exactly what is covered in your builders risk policy may seem like a daunting task, but reading (and understanding) what is in your policy can only benefit you in the end. Since every project is different, and every policy is different, you need to know who is covered in each unique circumstance, what your property includes, what your exclusions are, and what could cause the coverage to be terminated.

Your insurance broker can help you understand the language and details of your policy, so don’t hesitate to go over the fine print in detail with someone who knows.