Many contractors begin their businesses with one or two tools and one or two customers. At that point, business insurance is probably a very low priority.
But as your business grows, so does your need for financial stability.
More customers mean more risk, and more employees means more liability.
Since time is at a premium for all contractors, it’s important to buy online, even when it comes to things like insurance.
The process should be as seamless and streamlined as possible. It helps immensely if you have a general idea of what you need, and how much you can afford to spend, before you start shopping.
Types of Insurance
Almost all contractors need general liability insurance, especially if they go into customers’ homes or businesses.
GL insurance protects you from accidental losses, such as breaking a TV while remodeling a room, and injury-related losses, like slip-and-fall claims.
Depending on the type of contracting business, Errors and Omissions policies may be a good idea as well. E&O insurance protects you against claims related to business decisions.
Also depending on the type of business, workers’ compensation may be a necessity. Most states have their own rules about things like policy limits and excluded companies.
If you are renting space, or plan to rent it sometime soon, you will probably need commercial insurance as well. These policies cover claims related to physical damage at the leased premises. Many commercial landlords do not rent to uninsured businesses.
Many contractors overlook cyber liability insurance. After all, they reason, why does a building contractor need protection in this area?
But if you accept electronic payments or if you have a website, your business is vulnerable. The majority of small businesses do not reopen following a cybersecurity breach, so this type of insurance is a necessity.
These calculations start with a realistic assessment of your business’ financial condition.
How much can you really afford to lose if someone makes a claim against your business?
Be sure to count all the direct costs, such as legal fees and settlement expenses, as well as indirect costs, such as the loss of customer goodwill.
On a related note, consider how much of a deductible you can afford to pay.
The greater the deductible, the lower the premium, at least in general. High deductibles shift financial risk from the company onto the insured party.
Next, assess your risk, because that’s probably how the insurance company will set your rate.
If you have a full-time contracting business with several employees, your risk is probably rather high. If you are more of a weekend handyperson who does jobs for friends and family, your risk may not be as great.
Finally, take stock of your monthly budget. Expect the premiums to be at or near your budgetary ceiling.
If the premiums are too low, you are probably exposed; if the premiums are too high, you are probably over-covered.
Starting a contracting business is an exciting time. Just make sure you protect your investment and do not allow one mistake to ruin everything you’ve worked so hard to build.