High vs. Low Contractor Insurance Deductibles: Consider the Risks

Having the right contractor insurance policies in place is an important part of running a construction business. Construction is a risky industry, and insurance can protect your business from complete financial ruin if an unexpected accident or incident occurs. But that doesn’t mean you have to overpay for this vital coverage. In fact, there are many ways to save on your contractor insurance policies, such as raising the amounts of your deductibles to save on your monthly premiums.

High vs. Low Contractor Deductibles: Which is Better for Your Business?

Before you run out and increase your deductibles on all of your insurance policies, it’s important to have a bit more information to be sure you are making the correct decision for your individual business.

But first, a refresher...

What is a deductible?

Your insurance deductible is the amount you will pay out of pocket before your insurance benefits kick in.

For example, your general liability policy may have a deductible of $500. Let’s imagine you accidentally cause $2,000 worth of property damage to a neighbor’s property while working on a project. You file a claim on your general liability policy, and it is accepted. You pay your $500 deductible, and your insurance company pays the remaining $1,500.

What is a premium?

Your insurance premium is the amount of money you pay for your insurance coverage. A premium can be paid in either monthly or yearly installments. The factors that determine your premium price can include the type of policy you have, the limits on that policy, and the policy deductibles.

Choosing a higher deductible amount will often lower your monthly premiums.

In the example above, you may choose to increase your general liability deductible to $1,000 in order to save on your monthly premiums. If you file a claim for $2,000 in damages, you would be responsible for paying $1,000, and your insurance company would pay the remaining $1,000.

The Risks of Raising Your Deductible

Saving money on your insurance premiums sounds like a great idea, as long as you are prepared for the risks of raising your deductible.

The reason that you carry contractor insurance coverage in the first place is to protect your business from an accident or incident that could be financially devastating. If a fire broke out on a project, wiped out all of your progress, and destroyed the materials and supplies that you had stored on site, could you afford it?

For many contractors, the answer is no.

Carrying contractor insurance coverage protects your bottom line so you don’t have to worry about the high costs of an unintended accident.

But what happens if you have chosen a deductible that is completely unaffordable?

If you don’t have the resources available to cover the cost of your deductible, then your insurance policy isn’t providing you the financial protection your business needs. And that leaves you exposed to risks that could shut you down permanently.

When Should You Increase Your Insurance Deductibles?

There are times when it does make sense to raise your deductible amounts and lower your insurance premiums.

The best time to increase your deductibles is when you already have an emergency fund saved that will cover your highest deductible amount if something goes wrong.

Bottom line: The right deductible amount for your business insurance coverage is the amount you have on hand and can afford to pay if something goes wrong.

Raising your deductible amounts can be a smart business move that saves you money on your monthly or yearly premium payments. The extra money can help you grow your business, invest in new equipment, and even increase your available cash flow. But the best use of the extra cash is to be increase your business savings account to be sure you can afford to pay your higher deductibles, just in case.


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