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Contractor’s equipment: rent, buy, borrow or refurbish?

For contractors, equipment can be the lifeblood of a business, and keeping your construction equipment running well can be critical to a project’s success. When you need equipment, you review your anticipated work volumes and your fleet management to determine equipment needs. Then, it comes down to this: should I rent, lease, buy, borrow or refurbish? The choice can have a long-lasting impact on your business, especially for more expensive pieces of equipment.

Our friends at Travelers weighed the benefits and risks to these options for filling your equipment needs, and provided some tips to help make sure you’re properly covered:

Equipment Rental or Leasing

Insurance Considerations

Contractor’s equipment insurance policies can have different rules for rented, borrowed, and leased equipment as compared to the rules that may apply to equipment that is purchased. For example, the policy might not provide coverage for or may limit the value of rented, borrowed or leased equipment or it might exclude certain activities, such as waterborne construction.

Likewise, if the rental agent provides equipment rental insurance, you must pay attention to what’s covered and what’s not. This insurance might only cover damage from certain hazards, like fire. It may also exclude coverage if you lend the nonowned piece of equipment to someone else. Review the terms and condition carefully to ensure you don’t find yourself in a position without coverage.

Lastly, if you borrow equipment from another contractor, review your coverage carefully with your agent. You’ll want to be certain there aren’t any gaps in coverage for this scenario.

Buying Construction Equipment

Insurance Considerations

If you decide to buy construction equipment, you should make sure it’s covered under the right insurance. For example, if you buy a new concrete pump truck, is there coverage under your contractor insurance policy or the vehicle policy?

Some activities could also be excluded, like overloading a crane. You should review with your insurance agent how you plan on using the equipment to see if it’s all covered.

Contractor’s equipment policies typically have a reporting requirement for newly acquired equipment. This policy condition requires you to notify your insurer whenever you buy equipment that exceeds the policy limits. Ask your insurance agent whether your policy has such a condition so that you can ensure you are notifying your carrier within the specified timeframe.

Finally, you should insure the new piece of equipment to its correct value. This is simple for brand-new equipment, as it’s the purchase price. But correctly valuating used equipment can be more difficult. You should work with your agent to determine the correct valuation.

Using Refurbished Equipment

Insurance Considerations

With refurbished equipment, the main insurance concern is determining the correct valuation. If the insurance company values the equipment based solely on its age, it could underestimate its worth. To avoid undervaluation, request that your policy list an agreed value for refurbished equipment.

Source: Travelers Construction Insights