As a construction company, it is critical that you have adequate insurance for each of your projects. This insurance protects you, your employees, the client, and the general public. Depending on the scope of your project, clients may require certain types of insurance coverages and limits until the job is complete. In this article, we'll explain the basic types of construction insurance and why they're important.
What is Construction Insurance?
Construction insurance is a broad category of insurance policies designed to protect you today and in the future. There isn't a specific "construction insurance" policy to purchase. Instead, most construction companies work with an agent to customize coverages based on the project and the risks that face it. This enables you to minimize costs while maximizing the coverage.
As a construction company, there are risks to your business, employees, clients, and the people and businesses who will benefit from your project. Because your projects often have long lifespans, it is important to cover your projects long after the build is complete.
In most cases, the client will request specific coverages as part of your contract. Additionally, if you're using bank funding to cover expenses, the bank may also require specific coverages, limits, and deductibles in order to get a loan.
10 types of construction insurance
As a construction company, you need to protect your business against common insurance risks. However, because of the nature of your business, there are a variety of risks that other businesses don't normally have to worry about.
These ten policies are the most common types of construction insurance. They protect against general business issues and unique situations in the construction industry.
Commercial and contractor general liability insurance
General liability policies are a must for any business. They serve as the basic insurance coverage from claims that you harmed someone or their property.
This coverage protects you against claims that you damaged someone's property, injuries at your business or project site, or that something you built caused them harm. General liability coverage does not protect against professional negligence, which is covered by errors and omissions insurance.
Builders risk insurance (a.k.a. course of construction insurance)
Builders risk insurance protects buildings and other structures while they are under construction. These policies are also known as "course of construction" or "construction all risk" insurance. Because most commercial property insurance policies do not cover unfinished buildings, builders risk insurance provides that protection.
Typically, these policies limit claims to damage resulting from fire, weather and vandalism. These policies do not include damage from other natural disasters, like earthquakes and floods. However, some insurers may allow you to expand your coverage to include them.
Professional liability insurance (a.k.a. errors and omissions insurance)
Professional liability insurance covers claims due to errors or mistakes in the work performed by the construction company. This is why it is also known as "errors and omissions" insurance. This insurance covers the cost of fixing the mistakes. Depending upon when someone discovers the errors, a claim may be submitted during construction or after the project is complete.
Generally, claims under a professional liability insurance policy are to fix the construction defects. It does not cover property damage or injuries that may occur from the mistakes.
Inland Marine Insurance
Although the name "inland marine" may evoke thoughts of boats and water, that's not what this insurance does. Instead, this insurance covers the movement of goods, equipment, tools, and supplies. While most business insurance policies cover these items at your office or a worksite, they don't cover items in transit.
For example, if you stop to get gas or food while driving between locations and someone steals tools from your truck, an inland marine insurance policy covers the claim.
Business vehicle and commercial auto insurance
Ideally, your company owns all of your company vehicles and the insurance is under the business' name. If you're using your personal vehicle to run your business, a personal auto insurance policy doesn't offer the protection you need for your construction company.
Commercial auto insurance policies not only cover cars and trucks used in your business, but they also insure larger construction vehicles that personal auto insurance won't, like dump trucks, tractor-trailers, and cement trucks.
Contractor license bonds (a.k.a. surety bonds)
Contractor license bonds protect the client by making sure that you follow the regulations that apply to your contractor license. The cost of a contractor license bond depends on the type of license you hold, your track record as a contractor, and the size and scope of the project. Many government and private contracts require a contractor license bond to protect themselves against improper work.
A construction bond assures the client that it will receive the services and completed work that it paid you for. It is a legally binding contract that typically covers specific portions of the contract or overall construction project. The bond also protects the client from any unpaid invoices for materials and subcontractor work owed by the contractor.
Most government construction projects and some private jobs require a bond before you can win the contract and begin the work.
Workers' compensation insurance
One of the most important types of construction insurance is workers' compensation insurance. This insurance protects the employee and the company when someone gets hurt during the course of their employment. In the construction industry, worker injuries are a common risk to the employee and the company. Because these workers perform manual labor or are in fairly dangerous situations, the potential for injuries is part of the job. This insurance coverage covers lost wages, medical expenses, ongoing recovery, and other related expenses due to injury or death.
In most states, the law requires workers' compensation insurance. Premiums are primarily based on the total wages paid, the type of work performed, and the history of claims.
Pollution liability insurance
Construction companies that use chemicals or fuel tanks on their job sites should consider pollution liability insurance. Cleanup costs for spilled chemicals, oil, or gas can be extensive. This is especially true when the spill is large or left untreated for long periods of time.
Pollution liability insurance helps to cover the costs to remediate the soil and extract the spilled chemicals to ensure compliance with the EPA and other regulations.
Even though construction companies generally aren't considered a target for hackers, they are at risk as well. Hackers look for "soft" targets that don't have the latest online security software or protocols. They can lock up your computers and demand a ransom, or use your computers as an entry point to target your clients.
Cyber insurance is designed to protect your data, your business, and your clients against online security threats.
The bottom line
As a construction company, you have many unique needs for customized insurance protection. While there isn't a specific construction insurance policy, there are many types of construction insurance that could benefit your business.
The best option is to take a holistic view of your business and then shop your business insurance needs with a few insurance brokers to get the best deal. In some cases, you may need to piece together coverages from different insurance companies to address all of your insurance risks.