Gaining Knowledge About Construction Insurance
Property owners, developers, and contractors are covered by a wide range of Insurance policies during a building project. In actuality, many projects require specific kinds of construction insurance plans. We will go over the fundamentals of construction insurance, the most popular policy types, and the situations in which those policies would be applicable in the sections that follow. Check out our list of suggested construction insurance providers below if you're already knowledgeable about the subject or just wish to work with a trustworthy organization.
Construction Insurance: What Is It?
A wide range of insurance products that offer protection during construction projects are grouped together under the heading of construction insurance. In actuality, "construction insurance" does not refer to a specific type of insurance; rather, it refers broadly to insurance for construction projects.
Different Construction Insurance Types
When starting a construction project, a property owner may want to get insurance on a variety of project-related items, such as the building and materials while they are in transit. A contractor for the same project may need several kinds of coverage, such as general liability and commercial motor insurance, depending on the terms of the contract. Further details regarding the different kinds of coverage are provided below.
1. Construction Insurance for Builders Risk
Builders' risk insurance covers buildings and other structures while they are being built. It is often referred to as course of construction (COC) insurance or occasionally construction all-risk insurance. Structures that are being built are usually not covered by other insurance plans, such as commercial property insurance or homeowners insurance. The following categories of property are typically covered by choices in builders risk policies:
Constructions and frameworks
- Establishments
- Equipment
- Temporary frameworks, like scaffolding
- Fences, paving, and outdoor fixtures
- trees, plants, and lawns that the builder put in
- Generally speaking, insurance companies cover the following kinds of construction projects:
Newly constructed homes
- Smaller tasks or renovations in homes
- Model residences and their furnishings
- Construction of commercial real estate
2. Insurance for General Liability
General liability insurance is a type of insurance that protects businesses against responsibility in the event of property damage or bodily injury sustained while conducting business. It is sometimes referred to as contractor general liability insurance or commercial general liability (CGL) insurance. Insurance companies develop several iterations of these plans that are accessible to construction industry professionals and for construction-related projects. Liability insurance policies are offered to safeguard policyholders from needless risk, regardless of whether you are the property owner, contractor, or another kind of construction company. These policies are frequently marketed as "general liability insurance for contractors" or "contractor general liability insurance."
Policies for general liability insurance typically provide coverage for a wide range of damages, such as:
- Poor craftsmanship
- Workplace injuries
- Defamation and injury from advertising
In certain areas, contractors and developers may be legally obligated to have a minimum level of liability insurance, or they may be obliged to do so in order to be awarded contracts that call for it. Businesses that finish a lot of design-build projects will most likely desire liability insurance in case they are held legally liable for errors. Furthermore, some general contractors often demand subcontractors to have liability insurance in order for them to work for them.
Various suppliers offer general liability insurance plans for the following categories of construction businesses:
- Creators
- Principal contractors
- engineering and architectural businesses
- Specialist vendors
- Handyman companies
Certain exclusions, which shield the insurance company from having to pay for particular kinds of losses or accidents, are probably defined in the policy, much like in builders' risk and other insurance coverage types.
3. Professional liability insurance and errors and omissions insurance
Errors and omissions insurance, sometimes referred to as professional liability insurance, is a kind of insurance that shields companies against lawsuits brought about by faults or errors in their work. For instance, the owner may file a lawsuit against the engineer to recoup expenses if the engineer makes a mistake in determining the building's structural needs and the owner is later forced to perform expensive repairs. In that instance, the claim may be covered by the engineer's E&O coverage.
Additionally, there are specific contractor E&O plans that, while covering claims resulting from work completed, are comparable to contractor general liability insurance in that they typically cover a narrower range of
4. Commercial Vehicle/Truck Liability
There are other uses for commercial vehicle insurance, commonly known as commercial auto insurance, besides building sites. It is insurance designed to give business vehicles auto insurance. The goal of commercial auto insurance coverage is to shield policyholders against excessive auto repair costs, unfavourable medical bills, and lawsuits brought on by collisions.
Similar to regular auto insurance policies, commercial auto insurance policies offer a variety of coverage alternatives. Among the alternatives for standard coverage are:
Liability coverage shields the business and its workers from costs related to employee-caused accidents.
Physical Damage Coverage: This insurance pays for repairs made to business cars following an approved collision. Comprehensive coverage, which guards against auto theft, vandalism, and natural disaster destruction, may also be included in this.
Medical Payments Coverage: This type of coverage assists in covering costs associated with an injury sustained during a covered incident, such as hospital stays, ambulance rides, and burial expenses.
Uninsured Motorist Coverage: This kind of insurance protects against losses and injuries brought on by drivers without insurance. This is required because the harm and losses you cause to other people are covered by your personal liability insurance. You still want to be protected against expensive medical bills or repairs in the event that you are involved in a collision with someone who does not have this coverage.
Insurance companies such as Progressive cover a wide range of commercial vehicles, including those frequently utilized in construction projects. Commercial auto insurance providers often cover the following kinds of vehicles and trailers:
Vehicle Types
- Trucks
- Pickup trucks
- Dump trucks
- Flatbed trucks
- Cement mixers
- Pump trucks
- Bucket trucks
- Straight trucks
Trailer Types
- Auto hauler trailers
- Dry freight trailers
- Flatbed trailers
- Utility trailers
- Bulk commodity trailers
- Concession trailers
- Dry freight trailers
- Dump body trailers or transfer boxes
- Pole trailers
- Refrigerated dry freight trailers
- Tank trailers
It is important to remember that commercial vehicle insurance also includes commercial truck insurance, a more specialized coverage type. Commercial truck insurance is especially meant for big vehicles (including cement mixers, dump trucks, semi-trucks, and other business vehicles) and the companies that operate them. Commercial auto insurance, on the other hand, is a general phrase that covers a wide variety of vehicles used for business reasons. Commercial truck insurance offers additional coverage options such as cargo coverage, general liability coverage, and downtime coverage, in addition to all the coverage options offered by a typical commercial auto policy.
Driving a car for work requires having some sort of commercial auto insurance, regardless of the kind of vehicle you drive. Remember that most personal auto insurance policies won't cover incidents that occur when you use your car for work-related activities.
5. Insurance for Inland Marine
Another extensive category of insurance that applies far beyond the building sector is inland marine insurance. Although the name originates from a time when this type of insurance mostly covered goods and ships that were destined for the ocean, that is no longer the case. Over time, inland maritime insurance coverage has expanded to include a wide range of property categories, such as digital information and computer equipment, mobile equipment, property in the care of a repairman or storage facility, and property that is frequently utilized in multiple locations.
Inland marine insurance for the construction sector mostly covers the tools and machinery that developers and contractors employ. It's also known as "tool and equipment insurance" or "contractor equipment insurance" for this reason.
Numerous properties utilized by builders, contractors, and developers are covered by these insurance plans, including:
- Tools, gear, apparel, and materials used by contractors (e.g., hammers, drills, generators, electric saws, wood, drywall, etc.)
- Mobile machinery, such as cranes, loaders, forklifts, and excavators
- Equipment that has been rented or borrowed (such as electric generators and forklifts)
- Computer hardware and data (tablets, laptops, and data from individual projects)
Items will be covered by policies either at replacement cost or at the fair market value of lost or stolen property. Examples of covered events under this kind of insurance are:
- Tools taken at a construction site
- Equipment or tools broken during delivery to a job site
- On a job site, equipment damaged by a fire or natural disaster
Additional expenses that may be related to the theft or damage of contractor tools and equipment are covered by this type of insurance and include:
- After a reported occurrence, cleanup of pollutants and debris
- Expenses associated with delays brought on by a covered incidence
6. Bonds for Contractor Licenses
Like insurance plans, contractor license bonds are contracts that ensure a contractor will abide by the rules relevant to their specific contractor license. The primary distinction between this and an insurance policy is that, even if the contractor acquires the bond, its purpose is to safeguard the public and any parties with whom the contractor transacts business. Though they differ slightly from insurance policies, bonds are typically offered by insurance companies.
The amount of the bond to the contractor is often determined by their credit score and past earning history. Additionally, a building specialist's bond will cost less the better their track record.
It is mandatory for contractors to hold a contractor license bond in certain states, industries, and types of construction contracts. In certain situations, extra bonds will be needed.
See our comprehensive guide on contractor license bonds and their operation for additional information regarding licensing bonds for the construction sector.
7. Bonds for construction
Essentially, the purpose of construction bonds, often referred to as contract bonds, is to “guarantee” that a construction project or contract will be finished if it is accepted. There are various kinds of contract bonds, including:
- Bid bonds serve as a guarantee for the seriousness of project bid proposals and the contractors' ability to fund the project should their bid be selected.
- Performance bonds are used to make sure contractors follow the guidelines and complete the tasks outlined in the project contract.
- Payment bonds are used as insurance against the contractor's inability to pay suppliers, labourers, and subcontractors.
- Maintenance bonds, often called warranty bonds, are used to safeguard the project owner from subpar materials or labour performed by the contractor for a certain period after the latter's job is finished.
- Subdivision bonds are used to promise a city, county, or other local government that the property will be developed in compliance with the rules and regulations in the area.
- Bonds for site improvements offer the same assurances as those for subdivisions, but they are limited to newly constructed properties.
- Supply bonds serve as a guarantee that suppliers will deliver goods, materials, etc. under the terms of the contract.
8. Insurance for Workers' Compensation
The purpose of workers' compensation insurance, also referred to as workers' comp or workman's compensation, is to safeguard contractors and organizations if one of their employees is hurt at work. It accomplishes this by paying for the following expenses following a covered incident:
- medical costs
- Unpaid wages
- ongoing medical expenses associated with an injury
- legal costs if an injured party brings a lawsuit against the policyholder
- Death benefits and burial expenses
Like other insurance on this list, workers' compensation covers more than simply the construction sector, it is a crucial component of coverage for construction companies that intend to hire staff. In actuality, almost every state has legislation requiring workers' compensation insurance.
Workers' compensation coverage is provided by insurance firms such as Progressive, Nationwide, and Hartford to a variety of business kinds, such as electricians, plumbers, general contractors, and HVAC experts.
Construction Industry Insurance Needs
It may be on the minds of some, "Is construction insurance necessary?" In fact, it's not just necessary but required in a lot of situations.
Legally, commercial auto insurance is mandated. Laws governing the minimum requirements for motor liability insurance are in place in every state and at the federal level. The majority of states also have legal requirements for workers' compensation; however, the specifics differ depending on the state and the size of the company.
Although many construction contracts require the contractors to buy insurance for the projects they describe, state and federal laws will not mandate the other types of construction insurance. It is not normally necessary for smaller contractors to carry insurance for the tasks they take on, and in most cases, they won't when they work directly with homeowners. However, when huge organizations—such as colleges, local governments, and large corporations—assign large building projects, they nearly always demand that commercial developers and contractors maintain insurance that covers the project's different insurable parts. Even though the project sponsor is generally always responsible for covering these costs, the contractor still needs to locate and obtain a policy.
These project contracts usually stipulate that the contractors must have builder's risk, workers' compensation, and general liability insurance at the very least. Much less frequently, surety bonds and inland marine insurance will also be needed.
The project sponsor or the project contract will typically not require the higher limits and protection offered by professional liability coverage, excess liability, or umbrella policies. However, for contractors and companies involved in lawsuits following covered occurrences, this coverage can be quite helpful.
Costs of Construction Insurance
Because construction insurance covers a wide range of policies for a wide range of scenarios and can be purchased by a wide range of policyholders, there isn't a clear-cut solution to this topic. Furthermore, the insurance's potential buyers—developers, contractors, and property owners—have choices regarding the extent of coverage they desire.
Factors Influencing Construction Insurance Prices
The price of building insurance plans will vary depending on several variables. Even though construction insurance policies are all offered separately and have different coverage options, they are typically impacted by the same set of variables, which include:
The mean expense of building insurance
Even with differences in precise expenses, an approximation of the total cost of insurance coverage for different projects can be obtained. The approximate yearly rates for the different types of construction insurance policies are displayed in the following table:
| Average Annual Premium | Required? | |
| Commercial General Liability | $500-$1,500 | Usually |
| Umbrella / Excess Liability | $1,000-$3,000 | Recommended |
| Professional Liability | $800-$2,000 | Recommended |
| Builders Risk | 1-5% of project cost | Usually |
| Workers’ Compensation | $5,000-$8,000 per employee | Usually |
| Commercial Auto | $800-$5,000 per vehicle | Always |
| Surety Bonds | $100-$10,000 | Sometimes |
| Inland Marine | $2,000-$3,000 | Sometimes |
The prices listed in this table merely represent the average cost of various insurance policies across the country. Observe the wide range of these estimations. Various payment amounts may be paid by contractors, development firms, or homeowners, depending on the specifics of their projects as well as their individual safety and experience histories. In general, the cost of insurance is higher for contractors who take on greater risk.
For instance, the kind of projects undertaken and the claims history of development companies and building contractors affect the cost of general liability insurance for them. In reality, building contractors pay some of the highest rates for general liability of any profession due to the risk associated with construction projects.
Excess liability and professional insurance coverage are comparable. Lower-risk contractors are less expensive to insure, even if the cost of premiums might vary greatly.
Locating the Top Providers of Construction Insurance
Numerous insurance providers provide specific plans for the construction sector. In a perfect world, companies, builders, and homeowners could purchase all of their insurance plans from a single supplier, saving them money, time, and effort.
When selecting an insurer, buyers should also take into account the following factors:
Financial stability: Contractors and business developers should think about the insurer's level of financial stability. The insurer can be faced with a significant financial burden in the event of a significant disaster. The insurer you select should ideally be among the more reputable businesses with a solid financial future.
Customer service and reputation: When a claim is made, a policy is amended, or an inquiry regarding the policy needs to be addressed, policyholders will frequently need to communicate with their insurance provider.
Coverage: It's also crucial to confirm that the policy offers the full range of coverage. The policy's protection should, at the very least, satisfy the bare minimum set forth by the state and the contract, if not more.
Cost: Until you've given the insurer access to a large number of personal and project-related facts, the cost of the policy will typically remain hidden. Therefore, it's wise to get many rates before choosing a service. Insurers should be questioned by buyers regarding the discounts they provide, as it is common for contractors and project sponsors to reduce the total cost of the policy by simply applying discounts for which they are already eligible.
If you want to handle all of your construction insurance needs from one provider, the businesses on the following list fit that description and are worth considering.
The Top Commercial Developers and Contractors with Construction Insurance Providers
It's common for contractors and commercial developers—particularly those who submit bids for big building projects—to have to get a lot of insurance. Insurance policy costs are often transferable to the project sponsor; that being said, contractors should still keep cost in mind as well, since any savings can be transferred to the project sponsor and used to bolster their bids for contracts.
Additionally, contractors might want to think about the construction experience of their possible insurance providers more than homeowners do. The buyer will find it easier to create the policy and file a claim with an insurer who has greater experience with construction projects.
Several of the leading building insurance providers who satisfy the previously stated requirements are displayed in the table below. The majority of contractors and commercial developers should be able to find what they need from the wide choice of construction insurance solutions offered by these providers.
Top Construction Insurance Providers for Residential Owners
In most cases, homeowners and owner-builders are not the ideal candidates for the rules that are most effective for commercial developers and construction contractors. Generally speaking, these owners, who will also be the project sponsors, have the authority to demand that their contractors obtain insurance. However, they stand to gain if they insure the project themselves.
Homeowners prefer insurance companies that are not only very great in customer service and pricing but also have a lot of experience in construction. Ideally, the insurer should offer homeowners-focused coverage alternatives. The best insurance companies for homeowners and owner-builders who offer construction insurance are those that we have listed below.
AIG's
Zurich
State Farm
