Construction Insurance: What You Need to Know

Construction projects are oftentimes complex and involve various risks that can potentially cause significant financial losses. This is where construction insurance comes in, providing a safety net for contractors, builders, and developers. The insurance industry though, can be overwhelming, and understanding the policies, coverage, and requirements can be a challenge. In this article, we’ll cover the basics of construction insurance with answers to some commonly asked questions:

What is construction insurance?
Who needs construction insurance?
What is covered under a construction insurance policy?
How much does construction insurance typically cost?
What are the types of construction insurance?

What is Construction Insurance?

Construction insurance is a type of insurance that provides coverage for construction-related risks, losses, and liabilities. It protects contractors, builders, developers, and other construction professionals from financial losses that may arise during the construction process. Construction insurance typically covers a range of risks, including property damage, bodily injury, theft, and damage caused by natural disasters or accidents. The specific coverage and policies can vary depending on the type of construction project, the location, and other factors. Construction insurance is critical for ensuring that a construction project is adequately protected, minimizing the financial risks associated with construction projects.

Who Needs Construction Insurance?

Construction insurance is essential for anyone involved in a construction business or industry, including:

Contractors
Builders
Developers
Project owners
Architects
Engineers

Whether you are working on a small renovation project or a large-scale commercial construction project, construction insurance can protect you from the financial risks associated with construction work. In most cases, construction insurance is required by law or contract, and failure to carry adequate insurance coverage can result in significant financial losses, legal liabilities, loss of customers, and reputational damage. Additionally, construction insurance is often a requirement to secure financing or obtain permits for construction projects. Therefore, anyone involved in the construction industry should consider obtaining construction insurance to protect themselves and their business from potential losses and liabilities.

What is Covered Under a Construction Insurance Policy?

Construction insurance policies are designed to provide coverage for the risks and liabilities associated with construction projects. Depending on the specific policy, construction insurance can cover a range of risks, including property damage, bodily injury, and loss of income.

For example, if a construction worker is injured on the job site, a construction insurance policy can provide coverage for their medical bills and lost wages. Additionally, if a contractor accidentally damages a client’s property while working on a project, the insurance policy can cover the cost of repairs. Construction insurance policies can also provide coverage for risks related to the construction process itself, such as damage caused by faulty workmanship or design errors.

Overall, a construction insurance policy is designed to protect contractors, builders, and project owners from the risks and liabilities associated with construction projects. The specific coverage provided by a policy will depend on the policy type, the scope of the project, and other factors.

How Much Does Construction Insurance Typically Cost?

The cost of construction insurance varies depending on several factors, including the type of coverage, the size and scope of the construction project, the location, the level of risk, and the insurer. Generally, construction insurance is considered to be a significant expense for construction companies, and the cost can range from a few thousand dollars to hundreds of thousands of dollars annually, depending on the project’s complexity and risk.

It’s important to note that the cost of construction insurance is not only determined by the premiums but also by the deductible and lower coverage limits may result in lower premiums but could expose you to higher financial risks. It’s always recommended to work with a knowledgeable insurance agent who can help you determine the appropriate terms, coverage, and limits for your construction project and negotiate the best possible rates.

Why Your Construction Company Needs Business Insurance Coverage

Here are some examples of why construction contractors might need different insurance(s) to protect their business:

Example #1: You get in a car accident on the way to a job site and your car is totaled. On top of that, many of your tools were smashed. Your commercial auto insurance and inland marine insurance coverage can help cover the costs of replacing your car and equipment.
Example #2: A fire starts at the job site you're working at and the home is severely damaged. Builder's Risk Insurance helps cover the cost to repair the damage or replace the entire building.
Example #3: The superintendent of your company falls off the roof at a job site. He hurts his back and breaks his arm. Because you invested in workers' compensation insurance, you won't have to pay out-of-pocket costs for his injury. Your employees' lost wages and medical costs are covered by your insurance company in the event workers are injured on the job.

These are just a few examples of how the right insurance policy protects your business.

When Business Owners Need a Construction Bond

A construction bond (also referred to as a ‘surety bond’) guarantees that the work your construction company is doing will be completed correctly in the right time frame. There are surety companies (as opposed to an insurance company) that back these bonds and will pay damages if the bonds are broken (but you still owe them whatever they pay). What are the common types of construction bonds?

Bid Bond: A bid bond is usually required to bid on construction projects.
Performance Bond: If the contractor breaks the requirements of the performance bond, the owner can claim what it costs to hire another contractor to complete the project.
Public Works Bonds: This is the equivalent of a performance bond on the state level.
Payment Bond: This bond signifies that you’ll pay your subcontractors, vendors, laborers, supplies, etc.
Maintenance Bond: This bond acts as a type of warranty for your work.
Site Improvement Bonds: This bond ensures that a construction company follows all current building codes and standards.

One way to look at a construction bond is as a line of credit. If something were to happen on a project that you don't have the means to pay for or cover immediately, a bond provides immediate coverage while you pay them back.

What are the Types of Construction Insurance?

A construction insurance policy can cover a wide range of risks, losses, and liabilities associated with construction projects. The specific coverage and policies can vary depending on the type of construction project, location, and other factors. Here are some of the common types of coverage included in a construction insurance policy:

General Liability Insurance: This coverage protects contractors and builders from third-party claims for bodily injury, property damage, or personal injury that may occur during construction work.
Workers’ Compensation Insurance: This coverage provides benefits to employees who suffer work-related injuries or illnesses during the construction project.
Builder’s Risk Insurance: This coverage protects the construction project’s property, equipment, and materials from damage, theft, or other losses during the construction process.
Professional Liability Insurance: This coverage protects architects, engineers, and other professionals from claims related to design errors, omissions, or negligence during the construction project.
Environmental Liability Insurance: This coverage protects contractors and builders from third-party claims for environmental damages or pollution caused by the construction project.
Commercial Auto Insurance: This coverage protects construction vehicles used during the construction project.

The coverage and policies included in a construction insurance policy can vary depending on the project's scope, size, and location. It’s essential to work with a knowledgeable insurance professional to determine the right coverage for your specific construction project.

Let us help you protect your business with construction insurance and keep your mind at ease. At Tivly, our team’s goal is to help you find protection for your business as efficiently as possible by matching you with the right insurance provider. Simply give us a call at 877-907-5267 or complete the form above and one of our specialists will contact you right away.

Reviewed By: Andrea McKinney, MBA, Licensed Agent