The House Insurance Built
Risk Management for Builders & Contractors

Chapter 3: Tips for Finding Small Business Insurance
Part 1: Finding Small Business Insurance on Your Own

It's no small secret: insurance is complicated. And even though some companies have made significant strides in simplifying the process of purchasing coverage, it can be a lot to take in, even if you've purchased coverage before.

So how can you ensure you're getting the coverage you need and still find affordable rates? If you aren't working with an agent, you'll need to complete the following steps.

1. Take inventory of your risks.

Though we've talked in depth about the risks your contracting business may encounter, every company has its own nuances. So before you begin your search, consider your business. Here are a few questions to get you started:

  • Which tools and equipment could you not bear to lose or replace?
  • Which disasters are true threats to the continuation of your company?
  • Which policies do you need in order to conduct business in your state?

When mapping out potential risks and liabilities, be sure to be thorough and consider the worst-case scenarios — the ones that could truly derail your business. Those are the situations when you want your insurance to really hold up.

2. Create a list of potential insurance providers.

After you have a good idea about the policies you want in your insurance protection plan, it's time to make a list of providers. It's likely that you wouldn't make a large purchase without scoping out all your options — buying insurance is no different.

There are many different types of insurance providers. Some deal with personal policies while others deal with commercial insurance. But even commercial insurance providers carry different products and specialize in different types of coverage. When compiling your list, you'll want to look for a certain kind of provider, one that:

  • Has experience insuring small businesses.
  • Has experience insuring construction / contracting professionals

That's right. Not all insurers are familiar with the needs of small businesses. And not all insurers have provided coverage for construction and contracting professionals. But they are out there, and you'd do well to find them.

3. Vet your list of insurance providers.

In the fly-by-night age of the Internet, you can't be too careful when vetting your list of potential providers. That's why you'll want to check that your provider has the appropriate licensing and is covered by your state's guaranty fund (a back-up source in case the insurance company defaults).

You can find your state's insurance department on the National Association of Insurance Commissioners' (NAIC) "Map of NAIC States & Jurisdictions."

Though proper licensing is a sign that your carrier is on the right track, there are other factors that determine whether your provider is worthy of your investment. For example, how quick are the payouts? How reliable are the terms? Does the provider offer industry-specific policies?

If the provider has a high rating (an "A-rating" is the highest in the industry), you can rest assured you're dealing with a provider who values its clients. To compare ratings, look up your prospective providers on A.M. Best's website.

4. Request quotes from different carriers.

Once you have a list of providers you can trust with your business — ones that have experience with small construction outfits — contact them for quotes. You'll want to request estimates from a several companies so you can compare your options.

5. Compare the offers.

Policy prices are an important consideration, but it shouldn't be the final word on whether you sign or pass on a policy. After all, the goal here is to purchase coverage you can count on when a serious disaster strikes.

So take into account what each policy covers (its inclusions) as well as what it leaves out (exclusions). Check that the liability plans include coverage for legal defense fees (which can be a small fortune in their own right). Note each policy's limits — are they high enough to meet your needs? You don't want to be underinsured in a time of upheaval.

And remember, don't sign anything until you read and understand the fine print.

6. Consider your deductible.

Though this is part of the "comparing offers" step, it deserves its own section. That's because the deductible is often overlooked during the decision-making process. Your deductible is your out-of-pocket expense for coverage. It's the price you must pay before your insurance benefits kick in.

You may be tempted to take on a plan with a high deductible because the premiums are usually lower. However, this option could end up costing you more in the long run.

To determine an appropriate deductible, consider the frequency of the claims you may face. Would you have the funds on hand — at any given time — to cover your share? If you're unsure, just remember that your deductible should never be enough that it would jeopardize your own finances.

As you can see, the solo route is a work-intensive one! And if you don't have the time to research your options, vet providers, request quotes, and muddle through complicated insurance jargon on your own, maybe you'd fare better with an agent.

Next: Part 2: Finding Small Business Insurance with an Independent Insurance Agent

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