How Insurance Works for a Handyman (General Contractor)
With new condo and office buildings going up on every corner in the city it’s safe to say that the construction industry is booming in Montreal. Whether you’re a one-man operation specialised in your trade or a large operation overseeing million-dollar projects, it’s important to have the right type of insurance to fit your company’s needs. This month we’re going to go through a quick overview of the different coverages available to contracting and construction companies.
RBQ / Surety Bond:
Congrats! You passed your exam and are now licensed with the Regie du Batiment du Quebec and may now start operating your business. The first thing you’ll need is an RBQ bond, since these are mandatory for all licensed contractors in Quebec. Even though a bond isn’t technically an insurance product, but a financial one, they can be purchased through most commercial insurance brokers (like KBD). This is a product that protects your clients in the event that you were to default on your contract. Example: you are hired to pour a concrete floor in someone’s basement but once the client inspects it, they notice it’s not level. Because you did not perform the job correctly, you are considered to be in default, and the bond would cover the cost the consumer would incur to have someone else redo the job, if they are unable to recover the amount from you. These bonds come with limits of $20,000 and $40,000 depending on whether you’re a general or specialized contractor.
Now that you’re bonded, giving your consumers peace of mind, it’s time to start protecting yourself. The first coverage that you’ll want to get is Commercial General Liability. We’ve already touched on this in earlier blog posts, but to recap again this covers you for any bodily injury or property damage caused to a third party. Some examples of this would be if you were to cause a fire or flood while working on someone else’s property. KBD offers limits of up to $5,000,000 in general liability, so you will be fully protected if ever an accident were to happen and you were to be sued for the damage.
Next, it’s time to protect you against damage to your tools and equipment. These items are vital to you being able to perform your work, so it’s important to make sure that they are property insured. This way you’ll be able to replace them and resume working as soon as possible if they are damaged or stolen. The type of coverage you’d need would be a tool or equipment “floater”, which insures your tools and equipment at any location, both on the job site and while they are stored at night. You can have a blanket amount of insurance to cover all of your smaller tools and larger pieces of equipment individually and assign each one a value.
If you have an office that you work out of, or a warehouse where you store your equipment or materials, it’s important to have coverage for everything at that location as well. This would protect your desks, chairs, computers, etc. as well as everything you have stored at that location against perils such as fire, lightning, explosion, flood, earthquake, and theft.
Sometimes, if you are performing a larger job, it will take more than a day to complete. In this situation, it’s possible you’ll have materials at the job site that are not yet installed. For example, you are building a deck for someone’s home and purchase all of the wood up front but will build it over the course of several days; the raw materials aren’t part of the deck yet and they aren’t covered by your client’s home insurance policy. If these materials were to be damaged somehow, it would be up to you replace them so that you could continue your work. An installation floater covers you for damage to materials that are not yet installed or in the course of being built, your labour costs as well as the contents that are in transit.
For larger construction projects, it’s possible you will require to purchase what is called a builder’s risk. This is similar to an installation floater, but can have much higher limits. Whether you are performing a major renovation or extension to a building, or building a home or commercial building from scratch, you’ll need coverage for the property from the time you start until it is delivered to your customer. Imagine if you are ¾ of the way through building a home, and lightning strikes it and causes a fire. You will now have to re-start from scratch, which will dramatically increase the cost to complete the job, without any additional payment from your client. A builder’s risk provides you with insurance for the building while it is in the course of renovation or construction that covers the material and labour, and would reimburse you for the extra costs you would incur if the building is damaged.
If you are bidding on a larger project, it’s possible that the client will require a bid bond along with your proposal. Similar to the RBQ bond, this does not protect you, but your customer. It provides them with a guarantee that your bid will be honoured at the agreed upon price. For example: you put in a bid for a project at $100,000 and are awarded the contract, but then realize you made a mistake and are only be able to perform the job for $150,000 in order to make a profit. The bid bond would guarantee to the client that they don’t have to pay more than the $100,00, the original agreed upon price. In order to get a bid bond, you will have to provide the insurance company with your company’s financial statements, and if they determine that you have a good financial standing, they will issue the bond. This ensures that they would be able to recover any additional costs from you if ever you could not honour your bid.
Once you have been awarded a job, your client will sometimes require what is called a performance bond. This is similar to a bid bond, but this time it provides a guarantee to the client that you will perform the project to completion without defaulting. They may also require a wages and materials bond, which guarantees the client that if they pay you for the job, that you will pay your subcontractors and suppliers for the work they do and the materials they supply. If you were to default on the job mid project (due to bankruptcy as an example), the insurance company providing the bond would pay the excess cost that would be needed to complete the job. Again, an insurance company will need to analyze your finances in order to issue a bond for you, as they would want to be able to recover these costs back from you.
As you can see there are many different insurance products out there for companies in the construction and contracting domains. While you may not need all of these products right away, as your business grows your needs may change. As your broker, KBD can help you adapt your coverage and make sure that you have everything necessary to keep your business growing and properly protected.