How are you building your construction business? Whether you prefer the time-honored practice of word-of-mouth referrals or are up to speed on the latest digital marketing techniques, don't overlook one of the most essential tools you've got available to you: contractor insurance and bonds.
Not sure how an insurance policy or bonds can help put more cash in your account?
Keep reading to find out.
Contractor Insurance vs Contractor Bonds: What’s the Difference?
Both contractor insurance and bonds are very important for building up your contractor business … but for different reasons. In short, contractor insurance is there to protect your assets against unexpected events. Contractor bonds are there to protect your clients.
Contractor Insurance
From general liability coverage to inland marine insurance, there are a number of contractor insurance policies that you can arm your contractor business with in order to protect your assets.
Some policies are essential – and may even be legally required by the state you’re operating in – to protect your business should the unexpected occur.
Without the proper coverages in place, one misstep or accident could put your business in financial peril. Which doesn’t make you a very safe bet for prospective clients.
Having the proper protections in place to safeguard your business from financial losses – from lawsuits to vandalized job sites – shows that you’re taking your business seriously.
In the high-risk industry of construction, a lot can go wrong. Clients take comfort in knowing that if an accident occurs at their home as a result of your work, they won’t be the ones left high and dry or financially responsible.
Your employee accidentally backs into their garage door. Your general liability has the repairs covered.
A shower door your subcontractor hung eight months ago is sagging and needs replacing. Completed works insurance should help you take care of the costs.
Not only do these kinds of coverages give your clients peace of mind in case the worst should occur, but being insured also communicates to them that you are professional, setting you apart from those who don’t carry contractor insurance.
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Contractor Bonds
While contractor insurance may bring some comfort to your clients, contractor bonds are there specifically to protect them.
An agreement between you as the contractor, your client, and your insurance or bond company, a contractor bond guarantees that you will fulfill your contractual duties. Not only do these bonds create peace of mind but, more often than not, they keep your contractor business compliant with state laws that require bonds for public or private construction contracts.
Hiring a contractor who is bonded gives clients an extra sense of security knowing that, should the contract be broken, their work will be completed at no extra cost to them.
If you don’t fulfill your end of the contract, leading to your client’s financial harm, they can make a claim against your surety bond. The bond or insurance company then investigates the claim and pays up to the bond amount.
There are several different types of bonds for contractor businesses and the type(s) you’ll need depends on the work your performing on a specific job.
Common types of contractor bonds include:
License Bonds
Designed to protect consumers from damages resulting from license law violations such as defective construction.
Bid Bonds
Designed to protect project owners from bidders who may not have the financial means to actually accept the job for the price quoted on a bid, ensuring that contractors make serious bid proposals.
Performance Bonds
Designed to guarantee the faithful performance of the contract and payment (payment bond) of materials and labor by the contractor to all subcontractors and material suppliers.
Payment Bonds
Designed to guarantee payment to laborers, suppliers, and subcontractors in the event of the contractor defaulting, also ensuring that project owners don’t have to worry about liens being placed on the property when construction is completed.
What Kind Of Contractor Insurance Do You Need?
Take the guesswork and mystery out of choosing contractor insurance with a few easy questions to guide as you protect your hard-earned assets.
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How Do Contractor Insurance and Bonds Add Up to Getting New Clients?
It’s not hard to see how contractor insurance and bonds can help you bring in business. Everyone likes peace of mind, especially going into a costly construction project, and that’s exactly what bonds provide.
And that’s not all that they do. Bonds and insurance also show clients that your construction company is legitimate and professional, which is priceless.
But how do you use this to your advantage? You have to let people know.
Position Your Business as the Safe Choice in Your Marketing
Use your website, social media accounts, print materials (such as business cards, brochures, and newsletters), and online directories (such as Yelp) to advertise your business as the professional choice for potential clients.
But before you update all of your advertising materials, be sure you’re complying with state regulations.
Your state has laws on advertising your contractor business and it’s essential that you understand how you can and can’t advertise so that you don’t land your business, and yourself, in hot water.
Below are a few examples of California law’s dos and don’ts for advertising your contractor business.
- When promoting your contractor business, do advertise yourself as insured.
- Don’t advertise about bonding - it’s prohibited in the State of CA.
- When marketing your business as insured, do specify what types of insurance policies you carry.
- Do include your contractor license number in all advertising materials.
To be clear, these laws apply to California contractors. Make sure you know the rules in your state by checking with your state licensing board and ensure you understand the guidelines and restrictions that are in place before you start advertising.
Being insured and bonded sets your contractor business apart from the competition and defines yours as a company that can be trusted to bid honestly and see a project through to fruition.
Potential clients will see this and so will your bottom line, as you win bids and secure more projects based not only on your quality workmanship but also on the security your insurance and bonds provide.