Construction Insurance

Construction Insurance

Construction Insurance

Although there is no actual insurance product called “construction insurance” there are a number of insurance policies designed to offer protection during construction projects. Depending on the nature of the project—whether or not you are the general contractor, the property owner, or a subcontractor will influence the type of insurance you purchase.

What types of insurance do construction companies need?

A general liability insurance policy is something most construction companies should consider to mitigate some of the risks associated with construction projects, regardless of the size of the project. Here are six types of insurance no construction company should be without.

General Liability Insurance

This is insurance coverage every business should carry—including construction companies. This is coverage that will protect your construction company from bodily injury claims and property damage caused to a customer’s property by something you’ve installed like a new roof that leaks or damage, caused during excavation like clipping an unmarked waterline or unmarked electrical line, or other injury or damage caused during the course of a project (provided it’s not due to professional negligence). You can read more about general liability insurance here.

Professional Liability Insurance

Although general liability insurance doesn’t cover any claim due to professional negligence, professional liability insurance does. Mistakes happen in businesses every day, including potentially costly mistakes on a construction project. Professional liability insurance covers mistakes that can have a financial impact on a project.

Professional liability insurance doesn’t usually cover the cost of rework, but just the liability of the error. You can read more about professional liability insurance here.

Workers’ Compensation Insurance

Most states require workers’ compensation insurance. This insurance protects the workers from lost wages and medical expenses due to on-the-job injuries and protects you from potential lawsuits related to those injuries. Depending on the state you’re in, workers’ comp could be available through a marketplace of private carriers or run exclusively by the state. You’ll need to check with the state you’re in to see what’s available to you.

You can read more about workers’ compensation insurance here.

License Bonds or Surety Bonds

You may be required to obtain a license or surety bond to ensure that your customers get the services and completed work agreed upon. These bonds and licenses represent a legally binding contract to ensure you will pay for any material and labor required to finish the job—protecting your customers. Many cities require a performance bond and a payment bond to protect their interest in a contract. Being bonded demonstrates that your company is financially capable of performing the work required.

Commercial Auto Insurance

If you use vehicles during the course of your business, whether they be automobiles, pickup trucks, or larger commercial vehicles, you’ll also need commercial auto insurance. Even as a sole proprietor, if you use your personal vehicle for business purposes, relying on your personal auto insurance could create a gap in coverage. This is also true of employees that drive (even occasionally) your company vehicles or their personal vehicles.

Basically, if it needs to be licensed to operate on the roads where you do business, you should purchase commercial auto insurance for your vehicles including cars, trucks, dumptrucks, or other vehicles. You can read more about commercial auto insurance here.

Inland Marine Insurance

The construction industry often moves heavy equipment from jobsite to jobsite. Most general liability insurance covers property while at the worksite. Inland marine insurance provides coverage as equipment is in transit from one construction site to another. Builder’s risk insurance is also usually provided with an inland marine policy and is designed to cover equipment and materials for buildings under construction.

How much does construction insurance cost?

There are a lot of variables that go into underwriting insurance coverage for a construction business and creating the right insurance quote. Like most business insurance, insurers will look at your company’s risk profile, the type of construction you do, and where you operate. With that said, here are some averages to consider when shopping for construction insurance. Depending on whether you are a roofer, a carpenter, a handyman, or a locksmith, your rates will be either more or less than this.

Type of InsuranceAverage
General Liability ~$825 per year
Workers’ Compensation~$3,250 per year
Commercial Auto Insurance~$1,830 per year
Professional Liability Insurance~$600 per year

What does a construction insurance policy cover?

Insurance is a requirement for every construction project. Construction insurance can provide construction professionals with coverage for risk, materials, natural disasters, employees, contractor’s equipment, as well as the contracting business itself. 

What to look for in a construction insurance policy

Unforeseen events can happen on any construction project. Underwriters know this and consider the possibilities of risk when they are pricing your insurance coverage and you should too. With that in mind, here are four things to look for in construction insurance for your business.

  1. Does the policy meet your company’s insurance needs and potential risks? Does the policy safeguard your business against the worst-case scenarios. Your premiums will depend upon the perceived risk, so you’re going to want to make sure the policy is meeting your risk. In other words, make sure you’re not underinsured.
  2. Do you have a good insurance provider? There are a lot of options available to you, but you need a provider that can help you choose the right insurance for your construction business. A good provider or agent will help you navigate the options available to find the policy that’s right for you and your business.
  3. Dive into the deductible details. Make sure you understand the deductibles and the implications they will not only have on your insurance premium, but also on your coverage should you need to file a claim. Take the time to weigh the options, consider the potential frequency of a claim, and consider how much of the loss you can afford to absorb in terms of your deductible. Don’t pick a deductible that could put your business in jeopardy in the event of a claim.
  4. Make sure you understand the policy. It will look complicated, but it’s really important that you understand the policy before you sign on the dotted line. Make sure you understand the coverage limits, exclusions, and other details that will impact what’s covered and what’s not. You should be looking for gaps in coverage that can become expensive down the road.

How to get construction insurance

Fortunately you have a lot of options. There are a number of insurance companies that offer the collection of policies you will need in one place. Or, an independent insurance agent can help you pick the policies that will best meet your needs from multiple carriers. Additionally, there are online insurance marketplaces that can help you find the insurance suited to what your construction business needs.

This article was originally written on March 22, 2021.

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ABOUT AUTHOR

Ty Kiisel

Ty Kiisel is a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing. His mission at Nav is to make the maze of small business financing accessible by weaving personal experiences and other relevant anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.

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