The construction industry has high risks, liabilities, and accident occurrences. This makes construction insurance vital for contractors, workers, and every other major player in a construction project. However, finding a suitable construction insurance policy is seemingly more complex than other business insurance. Hence, there’s a need for contractors to have adequate prior information about the construction insurance and other relevant policies in the insurance industry. Most contractors need to carry a contractor general liability insurance to mitigate risk and financial losses associated with the contracting business.
Below, we look into 5 basic things to know about contractor insurance and other relevant insurance policies in the construction industry.
Why you need Contractor Insurance
Adequate knowledge about contractor insurance helps you get the right construction policy to protect you against financial losses, legal costs, replacement costs, and other costs that may arise from accidents causing bodily injury or property damage on a construction site. It ensures your coverage cuts across essential insurance policies, reducing the potential risks and expenses associated with the construction business. This policy is also needed sometimes to get a contractor’s license that allows you to legally carry out a subcontractor’s work.
Without further ado, here are the vital things to know about contractor insurance:
1. General Liability Coverage is Limited
Insurance coverage varies across companies. However, one common thing is this policy doesn’t cover all your needs during a construction project. Contractors usually need some specific coverage to protect themselves against the cost implications of certain occurrences specific to the nature and context of the business. General liability insurance policies cover claims relating to damages caused to third parties during an ongoing operation. This claim could be medical expenses if the third party is badly injured or replacement costs if there was property damage. Other essential coverages that suit specific purposes are:
- Commercial Auto Insurance
Commercial auto policy is suitable for contractors using pickup trucks or dump trucks to deliver materials or carry operations. Irrespective of the number of automobiles available at the contractor’s disposal, the commercial auto policy covers any damage or injury these vehicles can cause by accident. Small construction businesses that do not require automobiles for operation do not need commercial auto insurance. A general liability policy can cover the basic needs of small businesses. However, a commercial auto policy is essential for every construction company involved in larger-scale projects. Beyond the damages caused by your vehicle, it also takes care of any damage to your vehicle, either as a car accident or other related things.
- Inland Marine Insurance
Inland marine coverage, now known as equipment insurance coverage, protects contractors’ tools and equipment from natural damage and theft. This contractor policy protects both heavy machines and mobile equipment. You can purchase Inland Marine Insurance as a stand-alone policy or as an add-on to the business owner’s policy of your client. A business owner’s policy offers you needed coverage to protect your tools and equipment while working on a client’s project.
- Professional liability insurance
This policy covers damage or harm caused as a result of professional negligence or mistakes during contracting work. A project owner may decide to sue you if an oversight caused any bodily harm or property damage.
- Business Interruption Coverage
This policy protects a business from natural disasters that prevent business from earning. It covers the income they were meant to earn during inactive periods.
- Workers’ Compensation Insurance
Workers’ compensation insurance is another specific coverage suitable for only businesses with employees. It is an essential business policy and the most expensive part of business insurance in any contractor insurance program. Workers’ compensation insurance covers employees who get badly injured on a job site. This type of insurance usually comes with medical bills and other related costs. The rates may be higher or lower, depending on the severity of the accident or injury. A safety program can also be implemented to prevent accidents that may cause worker injury.
2. For Ongoing Construction Projects, Choose Builders Risk Insurance Over Commercial Property Insurance
This insurance policy, also known as “course of construction insurance”, deals with structures and buildings like customer property management coverage. However, its coverage covers buildings and other structural properties while still undergoing construction. It’s the preferred contractor’s insurance over commercial property insurance because the latter only offers coverage for a completed project. To protect a client’s property and contractor’s business property, independent contractors or small contractors like roofing contractors must ensure they have this policy.
3. Your Project Scale Determines the Right Insurance Policies to Buy
The insurance coverage for a sole contractor differs for companies with numerous workers. Liability limits and contract requirements are also factors that affect this. Usually, Business Owner Policy (BOP) is only available for certain industries having less than 100 workers and less than the $5 million liability limit. While contractors can benefit from this, banking and financial institutions can’t. General liability and other contractor insurance mentioned above are available to self-employed contractors and small businesses. While some medium-scale project contractors can purchase Umbrella insurance policy, Hired & non-owned policy, employment practices policy, etc. Contractors purchase pollution/environmental policy as a stand-alone policy with larger-scale projects handled by larger construction companies. Contractors’ professional liability (E&O), construction bonds, and surety bonds are other specific policies large-scale projects may require.
4. Always Check for Exclusions or Limitations When Purchasing Any Contractor’s General Liability Insurance
A good deal of insurance companies have certain exclusions or limitations in their insurance policies. This sometimes affects contractor insurance costs. Thus, it’s essential for you to always go through them thoroughly to find out where you’re fine. Some of the popular limitations/exclusions are:
- Work Damage Exclusion
This exclusion is unavoidable in most commercial general liability coverage. It indicates that the purchased policy would only pay for property damage you caused on a construction site, not damage done to your work. Thus, you bear the independent costs of any damage done to your work.
- Premises Limitations
This limitation limits coverage to the business location and other locations listed on the limitation page. Also, some insurers sometimes give lists of states they can’t provide coverage in because of legal constraints. This implies that your insurer can’t protect you in case of accidents outside the agreed states or within states not included in their coverage.
- Operations limitations
This limitation restricts your scope of operations only to what you list and agree upon on your limitation page. Hence, the policy won’t cover anything you do outside the listed operations.
5. Contractor’s Policy Coverage Doesn’t Have to Be Outrageously Expensive
It’s an essential point to note that with the right insurer like ContractorsLiability, you don’t have to break the bank to carry general liability insurance that can protect your business. You can get a streamlined quote that seamlessly fits your budget and needs when you work with the right company. To get the best price, compare quotes from various insurers and pick the one that best suits your coverage needs.
While the concept of contractor insurance and other related construction policy and coverage can be quite confusing, having a reliable insurance company or an experienced insurance agent can help you get through it with ease. ContractorsLiability is one of the recommended insurers you can trust for premium guidance, tips, and service. Feel free to contact their knowledgeable agents and get started finding the perfect insurance for business.
This content is brought to you by Daniel Sierra
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