A construction company needs a host of different insurance policies to cover its workers and the business against unexpected and significant losses.
A construction company needs a host of different insurance policies to cover its workers and the business against unexpected and significant losses. Navigating the legal requirements for insurance is tricky enough, so how can you tell if you’re paying too much?
If you end up with a policy that’s more expensive than you need, you'll spend thousands of unnecessary dollars a year. But how can you tell if it’s more expensive than you need?
Types of insurance policies
The first place to look is at the types of insurance you have versus the types of insurance you need. You may have more policies than necessary to cover your business, which makes it easy to start making cuts.
These are some of the most important insurance policies for construction businesses:
- General liability insurance. Your general liability insurance policy exists as a foundational layer of coverage to protect yourself from bodily injury or property damage resulting from one of your construction sites. All construction operations need to have general liability insurance, but the range of coverage offered depends on the insurance provider and your unique business needs. For large-scale operations, a general liability policy may not be enough, so you may need an umbrella policy to increase the limits of your protection.
- Builder’s risk insurance. Most construction jobs require a builder’s risk insurance policy, which covers damage related to that specific job. It may be extended to cover the transport and work with materials being shipped to or from the job site. Usually, these policies are active for periods of three months, six months or a year but may be extended if the project takes longer than expected.
- Professional liability insurance. Some contractors involved with designing and building responsibilities will also get professional liability insurance, which covers the designer in the event of a design-related failure. Ordinarily, this is not covered by general liability insurance, so it mandates a separate policy.
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- Workers' comp insurance. Though not mandated by all states, most states require businesses to have workers' compensation insurance. This coverage covers medical expenses and lost wages associated with an onsite injury to one of your workers – regardless of who is at fault.
No such thing as "average"
Unfortunately, the insurance industry is complex, requiring years of expertise to successfully navigate. Underwriters work to understand specific risks associated with each construction company, and each insurance provider calculates risk in a different way.
Because no two construction companies are exactly the same and no two insurance providers are the same, you’ll be hard-pressed to find two businesses that pay the same amount for insurance. What is considered a “good deal” to one company may be exorbitantly overpriced for another, due to increased risks involved with that particular builder. This makes it hard to tell when you’re overpaying for insurance based on price alone.
In some cases, you won’t have to worry about how much you’re paying. Mandatory business insurance is regulated at the state level, and for some types of insurance (in some states), you’re required to get insurance through the state. This leaves you no flexibility whatsoever when it comes to pricing.
Additionally, construction companies in different states will have different insurance needs. Make sure you consult your state’s insurance laws before eliminating one of your more expensive policies.
Shopping for the best price
The best way to tell if you’re overpaying for insurance is to get quotes from competing insurance providers. You should be able to tell quickly if there’s a better deal for you out there. Here's how you go about the process:
- Submit an RFP. Putting together an RFP (request for proposal) is the fastest and easiest way to shop for quotes. Essentially, you’ll submit a packet of information about your company to a handful of providers and request a quote from each so you can compare apples to apples.
- Include specific, consistent information. If you want your quotes to be truly comparable, you need to include specific and consistent information about your businesses. If you give the information to one company, make sure to give it to all of them and don’t withhold any important factors that could influence your price.
- Research your providers. Finally, do some research on your prospective providers before making a final decision. A low price point shouldn’t be the only determining factor in which company you choose.
Even if you’re satisfied with what you’re currently paying for your construction company’s insurance, it’s in your best interest to shop around for a new quote. A drop in premiums could save you thousands of dollars a year. Follow up by getting new quotes every couple of years; factors change, and so should your prices.