Mistake 1 – Not realizing the true risk and consequences of a loss
Most contractors believe they will never have a claim and therefore do not value insurance. They think insurance is simply a business cost they must bear in order to get certain jobs. In fact, many contractors will cancel their insurance once a job is done to save money. Few ever read the policy and as a result, they are caught off guard when a claim is denied and they are exposed to massive losses that usually end up with the contractor filing bankruptcy. Ignorance is costly! Read your policy and ask questions.
Mistake 2 – Buying the wrong policy
Contractors general liability insurance is not standardized. Every insurance company offers different terms that can seriously impact the protection you get. As a general rule, the cheaper the policy, the less coverage. Ask your broker to explain the differences when you get quotes with different prices.
Mistake 3 – Ignoring the exclusions listed in the policy
Simply put, and exclusion is something that is not covered. If you are a general contractor who builds new homes and the policy excludes new construction, you have no coverage, even if you pay the premiums! If you are a plumber and your policy excludes water damage, who pays when your work causes a kitchen leak? If you paint building exteriors and the wind blows the pain onto 50 cars in the parking lot, who pays if there is an overspray exclusion? YOU DO!
Mistake 4 – Choosing the wrong broker or agent
Insurance is a very broad industry. Imagine trying to stay up to date on coverages and exclusions for every type of business. It’s just not possible. Choose a broker with extensive experience in ensuring construction and the trades. Your broker can give you insights to structure the right coverage and also suggest smart ways to save money.
Mistake 5 – Failing to make sure your subcontractors are insured
Most insurance companies require that your subcontractors carry limits of liability insurance equal or greater than your own, that you be additionally insured on their policy, and that your contract with the sub contain an indemnification/hold harmless clause. A good broker can help you determine if your subs are in compliance. If you fail to do this, you can be opening up yourself for a huge liability exposure in the event of an accident.
Mistake 6 – Switching insurance constantly
If you have a habit of switching insurance companies every year you may be creating more exposure and limiting your ability to generate premium discounts. Most insurance companies reward claim free accounts by reducing rates once the account has been with them a few years. This is very true with larger accounts. If you switch all the time, you never have the opportunity to generate these credits. Also, by switching constantly, you increase your exposure to claims denial from prior insurers depending on the language of your policy.