Chapter 4: Risk Management for Contractors and Small Construction Businesses
Part 1: Risk Management Tips That Keep Insurance Rates Low
As we've mentioned, commercial insurance is the last line of defense for your business when unpreventable accidents and disasters happen. But some risks can be controlled or mitigated with the appropriate preventive measures. And if those measures end up not being enough, that's when your coverage can step in and raft you through the damage.
It's in the best interest of your business to try to prevent claims from happening in the first place, which can keep your insurance rates low.
Here are some tips to safeguard your business and keep your rates affordable:
- Put safety first. We mean both your safety and the safety of your clients or anyone who may come across your worksite. Before you begin work, scope out potential safety risks and create a plan for handling them. For example, ladders and scaffolds should never come within 10 feet of an electrical power line. It's this kind of awareness that can reduce fatal accidents. Also, be sure to familiarize yourself with federal, state, and local construction codes.
- Utilize contracts and waivers. Though liability waivers and contracts (with subcontractors and clients) aren't bulletproof in court, they can help establish expectations and responsibilities. In turn, these documents may be able to help you sort out a problem before it escalates into a lawsuit. But if the problem is pursued in court, be aware that every court handles waivers and contracts differently. Some let the terms of the contracts stand, while others dismiss them. The legal strength of the documents may prove to be the deciding factor. So be sure to work with an attorney when you draft these items to ensure their legal credibility. And don't rely on your contracts alone — always supplement this protection with adequate commercial liability insurance.
- Don't cancel your coverage during off seasons. Sure, when business is slow, it may be time to tighten the belt. But don't do yourself the disservice of canceling your coverage. For starters, you leave your business absolutely exposed the moment you terminate your policy. That means you won't have coverage for completed-products lawsuits, and those claims can pop up months after you finish a job. If you do cancel your insurance protection, all the legal costs would be your out-of-pocket responsibility. Plus, when you cancel your coverage only to apply for insurance next season, you may have difficulty securing coverage. If you start and stop your insurance coverage too many times, insurance providers will see that as a red flag.
- Protect your business on the road. Once you hire employees, be sure to check for proper licensing and insurance before they drive company vehicles. And if you want to keep your Commercial Auto Insurance rates low, remember that a good driving record, proper training, defensive driving, and regular vehicle maintenance go a long way.
- Keep clients in the loop. One way to reduce the chance of a costly court battle over your work is to keep the lines of communication open with your clients. If project timelines change or problems arise, talk to your client about the issues and work out an agreement. Though it may just seem like common courtesy or good business sense, these small gestures can make a difference.
- Maintain your equipment. Your tools are essential to your work, so keep them in good shape. Clean your tools and equipment after each day's use, protect cords with purpose-built casing, and store your gear properly.
- Comply with the Affordable Care Act. We discussed earlier that self-employed people are now responsible for carrying health insurance. If you don't have coverage, you will be assessed a fine of 1 percent of your yearly earnings. The Marketplace exchanges offer a variety of plans that can fulfill your minimum coverage requirements. For more information about the ACA, check out WebMD's guide, Health Care Reform: Health Insurance & Affordable Care Act.
- Pay your quarterly taxes. Self-employment also means you are responsible for paying your own income and self-employment taxes. You submit these taxes four times throughout the year (usually in April, June, September, and January). If you don't file your quarterly taxes throughout the year, you may owe penalties and interest in addition to your back taxes when you submit your annual return. And you don't want that! Luckily, the IRS makes it easy to file your estimated taxes with its Form 1040-ES vouchers (which you mail in), or you can use the IRS's Electronic Federal Tax Payment System, if the Internet is more your speed. For more information, visit the IRS's Construction Tax Center.
And remember, the best laid risk management plans may still land your business in court, so be sure you are properly insured at all times.
Next: Part 2: Considerations When Hiring Subcontractors
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