No one ever plans on a disaster happening, but when it comes to the construction industry, accidents can and do happen. That’s why it’s important for contractors and builders to have the right insurance policies in place to protect themselves, their businesses, and their employees. Whether you are getting insurance for statutory, regulatory, or contractual requirements or just to make your project hassle-free, parties cannot afford to go without it.
In this article, we will discuss the role of insurance in the construction industry, important insurance considerations, and the main types of insurance policies that are available for the construction industry.
Before we get into details, let us establish what are we talking about here for those of you who are not well versed in this topic.
What is Construction Insurance?
Insurance in construction is a type of insurance policy that provides protection for property damage, bodily injury, or other losses that may occur as a result of the construction process. There are many different types of construction insurance policies available, and each one covers a different aspect of the construction process.
Role of Insurance in Construction
The main role of insurance in construction is to protect the property owner, the contractor, and the workers from any financial loss that may occur as a result of an accident or disaster during the construction process.
There are three main reasons why a contractor would need insurance.
For Protection Against Financial Loss
Building a successful construction company takes a lot of time and effort. Construction company owners, understandably, need protection to ensure that an accident does not result in bankruptcy.
Construction firms can purchase commercial insurance to cover their risks up to the limits they believe are necessary to secure their operations.
For Meeting Contractual Requirements
Construction work frequently necessitates adherence to project owner or general contractor specifications. Before beginning a task or receiving payment for a project, most construction businesses must provide a certificate of insurance. As a result, most construction trades require insurance.
This condition is put out by the customers to make sure that their business with the contractor is covered and that they are dealing with contractors who have a certain business reputation. As it stands, not all of the contractors who are just starting up would be able to secure or even afford most of the insurance policies offered to large businesses.
To Comply with State & Federal Laws
To keep their trade license, specialized construction enterprises must hold particular insurance policies. Construction activity also frequently necessitates specific insurance coverages.
Workers’ compensation insurance is an example of needed coverage in the construction sector. If the construction company has employees and is not operated by a single person, this is essential. Auto insurance is another example of necessary coverage, which you’ll need if your firm uses company vehicles.
Types of Construction Insurance Policies
There is no shortage of insurance policies that almost cover every aspect of the construction and the companies or individuals involved. But, as a contractor, you cannot always go for all of the insurance policies due to their huge financial implications.
Insurance is necessary for your business but so are profits. Hence, finding the right fit among these two should be the first priority of any contractor. It should be made sure that all of those insurance policies are in place that will save your business in case of any unforeseen circumstances but most importantly you are not going to run your business to the ground because of the extra burden of insurance costs.
Here are the main insurance policy types that most construction businesses opt for due to financial risk, state laws, or due to contractual obligations.
General Liability Insurance
This is the most common type of construction insurance and it will protect you from third-party claims of property damage, bodily injury, or personal injury. You will need this insurance if you are working on a project as a sub-contractor. The main contractor should have this insurance, but you should check to make sure that they do before you start working on the project.
If you are a general contractor, you will need to have this insurance to protect yourself from claims that may come up from any work that your sub-contractors do. You will also need this insurance if you are working on a project as the main contractor. This insurance will protect you from third-party claims of property damage, bodily injury, or personal injury.
Most of the general liability insurance provides cover for below in any construction project,
- Customer injuries
- Customer property damage
- Libel and slander
- Product liability
- Attorney fees
- Court-ordered judgments
- Medical bills
- Funeral expenses in fatal incidents
Builder’s Risk Insurance
Builder’s risk insurance is a type of insurance that protects your property during the construction process. This policy can cover damage from weather, fire, theft, and other risks. If you are a contractor or builder, you may need this type of insurance to protect your investment.
There are two types of builder’s risk insurance: all-risk and named-peril. All-risk policies cover a wider range of risks, but they are also more expensive. Named-peril policies only cover the risks that are specifically named in the policy. It mainly covers four types of damages,
- Structural damage from weather
- Fire damage
- On-site theft
Workers’ Compensation Insurance
As a contractor, you are responsible for providing workers’ compensation insurance for your employees. This type of insurance covers medical expenses and lost wages if an employee is injured on the job. Workers’ compensation insurance is required in most states, so it’s important to be familiar with the laws in your state.
Due to the nature of the job, Worker’s Compensation Insurance is the most important in the construction industry. In case of any injury to a worker, it covers the below expenses,
- Immediate medical costs, including emergency room expenses
- Ongoing medical costs, such as physical rehabilitation
- Partial lost wages while the employee is unable to work
In case the worker sues, it will cover
- Attorney’s fees
- Court costs
Professional Liability Insurance
This insurance protects you from lawsuits alleging that your work failed to follow the blueprint or there were errors made in the construction project. A customer can sue a contractor for errors or failed contractual obligations.
If you’re found liable, your professional liability policy will cover your legal expenses, up to the limit of your policy. You should buy professional liability insurance if you provide advice or professional services to clients. It usually protects a contractor against the below,
- Failure to deliver promised services
- Negligence in providing services
- Errors and oversights
Moreover, having accurate construction cost estimations would keep you out of any financial trouble.
Business Vehicle and Commercial Auto Insurance
If you use a vehicle for business purposes, you need to have commercial auto insurance. This type of insurance covers vehicles used for business, including cars, trucks, vans, and trailers. Commercial auto insurance covers the same risks as personal auto insurance, but it also includes additional coverage for business use. Usually, it covers you against the below,
- Legal fees if someone sues you over an accident involving your vehicle
- Medical expenses if someone gets injured in the accident
- Repair coverage for the vehicle
Inland Marine Insurance
Inland marine insurance is a type of business insurance that covers property in transit. This includes materials, equipment, and tools that are being transported by land, air, or water. If you work in the construction industry, you may need this type of insurance to protect your equipment and materials while they’re in transit.
Contractor License Bonds or Surety Bonds
A contractor license bond is a type of surety bond that is required in order to obtain a contractor’s license. This bond protects the consumer from financial loss if the contractor fails to perform the work as agreed. Contractor license bonds are required in many states, so it’s important to check the requirements in your state.
Surety bonds are a type of insurance that protects the consumer from financial loss if the contractor fails to perform the work as agreed. Contractor license bonds and surety bonds are both types of insurance that protect consumers from financial loss.
Contractors’ Pollution Liability Insurance
This insurance protects contractors from pollution-related claims, including cleanup costs and third-party bodily injury or property damage claims. You might need this coverage if you work with hazardous materials or in an environmentally sensitive area.
Factors that Affect the Cost of Construction Insurance
There are a few factors that can affect the cost of construction insurance. These include the type of project, the location of the project, and the value of the project.
The type of insurance you need will also affect the cost. There is a variety of construction insurance available to protect you and your business. When deciding which type of insurance to buy, it’s important to consider the risks involved in your project.
Which Insurance Is Right for You?
The type of insurance policy that you will need will depend on the specific needs of your construction business. If you are a general contractor, you will likely need most of the insurance policies we mentioned above due to the fact that you would be held accountable if anything goes the wrong way in any case. However, if you are a sub-contractor, you may only need General Liability and Workers’ Compensation insurance.
It is important to speak with an insurance agent who specializes in construction insurance to determine which policies are right for you and your business. They will be able to assess the specific risks associated with your construction business and advise you on the best course of action.