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General Contractor Insurance: What You Need to Know

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According to the Associated General Contractors of America, “The construction industry has more than 680,000 employers with over 7 million employees. Your line of work creates almost $1.3 trillion worth of structures each year.” According to the U.S. Census Bureau, as of January 2020, $1.3 billion is spent on construction—both public and private—in a single month. The best way to protect your specific business—and keep that income rolling in—is to get the right business insurance policies.

If you’re a general contractor, it’s essential to protect your business and employees with the right insurance coverage. General contractor insurance can help shield your business from costly legal claims and financial damages resulting from accidents or unforeseen events. In this article, we’ll explore the basics of general contractor insurance, including who needs it, what it covers, and how much it costs. Whether you’re a seasoned contractor or just starting in the industry, this guide will provide you with the knowledge you need to make informed decisions about your insurance needs. 

Are Contractors Required to Have Insurance?

The requirements for contractor insurance can vary depending on the location and type of work being performed. In general, contractors are not always legally required to have insurance, but many clients or contracts may require it as a condition of doing business. Additionally, certain types of insurance, such as workers’ compensation insurance, may be mandated by law in some states or jurisdictions. It’s important for contractors to understand the insurance requirements for their specific business and work environment to ensure that they are adequately protected and in compliance with any legal or contractual obligations. 

What is General Contractor Liability Insurance?

General Contractor Insurance is a type of insurance policy designed to protect general contractors and their businesses from financial losses and legal liabilities. It typically covers a range of risks associated with the construction industry, including property damage, bodily injury, and third-party claims arising from construction related accidents or incidents. Depending on the policy, it may also provide coverage for issues like construction defects, errors or omissions, and equipment or tool theft. General contractor insurance is often required by law or by contract, and it can help provide peace of mind to contractors and their clients by ensuring that they are protected in the event of an unexpected event or accident.

Every general contractor has assets to protect and is exposed to liabilities while conducting business. If you’re overseeing a project and something goes wrong—you’re typically the one held liable. You need to recognize the importance of securing a policy to protect yourself and your business. This is where General Liability Insurance comes into play.

General Liability Insurance is a basic insurance policy that protects you in the event of injury or damage to a third party. It’s a requirement from most entities when you enter into a contract. In short, contractors general liability insurance typically covers:

  • Third-party bodily injury: If a passerby is injured on your job site, a general liability insurance policy can cover their medical costs (including ongoing medical payments).
  • Property damage: If one of your construction workers accidentally damages a neighboring building, general liability can cover the repair costs.
  • Personal and advertising injury: This portion of the policy covers things like accusations of libel, slander, or copyright infringement.

You should seek out a licensed insurance professional to discuss the policy options available to insure your business. Make it a top priority and work with your agent to develop a comprehensive insurance package that makes sense for your business while addressing affordability and cost savings options.

Who Needs General Contractor Insurance?

General contractor insurance is typically needed by individuals or businesses that work in the construction industry as general contractors. This can include builders, remodelers, and other professionals who oversee construction projects and hire subcontractors to perform various tasks. General contractor insurance is also important for those who work with heavy machinery, operate vehicles, or handle hazardous materials, as these activities can pose significant risks to both workers and others on the job side. Additionally, general contractor insurance may be required by clients, government agencies, or contracts as a way to ensure that contractors are financially protected in the event of an accident or unexpected incident. 

What is Covered Under a General Contractor Policy?

The coverage provided under a general contractor insurance policy can vary depending on the insurer and the specific policy. However, a typical general contractor policy may include the following types of coverage:

  • Business Property Insurance: This insurance important if you have a physical location and/or office and store equipment there. General contracting is more than building: It’s organizing contracts and plans, client information, and maintaining records. Using property insurance to protect your data and off-site equipment is just as important as securing your tools, inventory, and vehicles.
  • Workers' Compensation: Workers compensation provides health benefits to your employees for work-related accidents. If you're a small business and have employees, you need to be familiar with your state’s laws concerning workers' compensation—many require a business to obtain it. This policy can help cover an employee's medical expenses and lost wages if they're injured at work. It can also protect your business from being sued if injury occurs. Familiarize yourself with your state’s laws to understand your obligations and risks.
  • Commercial Auto Insurance: As a small business owner and general contractor, you likely use some sort of vehicle to transport yourself and your tools to a worksite. This opens yourself up to risk, especially if you’re involved in an accident or the vehicle is stolen. Commercial auto coverage can help repair property damage to your vehicle and other property as well as personal and third-party injuries. Insuring your vehicle has coverage under commercial auto insurance is another factor to consider to protect your business.
  • Builder’s Risk Insurance Coverage: Builder's risk insurance can be defined as coverage that protects a person's or organization's insurable interest in materials, fixtures, and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered loss
  • Professional Liability Insurance: Professional liability insurance (sometimes referred to as contractors' errors and omissions insurance) covers personal injury as it pertains to the professional services you provide. It usually helps protect your business from accusations of processional errors, negligence, incomplete or faulty work, etc. If you have this insurance coverage, your insurance company can provide you with a lawyer and cover related legal fees. We recommend bundling general liability with professional liability coverage.
  • Inland Marine Insurance: Inland Marine Insurance is a type of floater policy you can get through your insurance company. It's often be referred to as "Contractors Tools and Equipment Insurance." It is coverage for equipment being transported to and from a worksite. It also covers equipment stored at a job site. This is usually excluded from a personal auto policy and a commercial auto policy unless the equipment is permanently attached to the vehicle. 

It’s important to note that the coverage provided under a general contractor policy can vary, so it’s essential to review the policy carefully and understand what is and isn’t covered. Additionally, certain types of coverage may be required by law or contract, so contractors should be sure to comply with any mandatory insurance requirements. 

Other Factors a Contracting Business Must Consider

Did you know that you're required to obtain some insurance to bid on government contracts? That can include: 

  • Construction Bond/Surety Bonds: A Surety Bond is a legally binding contract—between a surety, principle, and the obligee—that guarantees the type of contracting work to be done is completed correctly and in the agreed-upon length of time. The ‘surety’ is the insurance company that backs the bond. The ‘principle’ typically refers to the contractor, with the ‘obligee’ being the agency requiring the surety bond. 
  • Liability Insurance Certificate: Many clients are requesting a liability insurance certificate from contractors as a requirement to bid on a project. Certificates of insurance summarize a tremendous amount of information on a single sheet of paper for the requester of the certificate. A certificate should also include a list of your "additional insured." Ask your licensed insurance company for a current copy of your liability insurance certificate. 

How Much Does General Liability Insurance Cost?

The cost of general contractor insurance can vary widely depending on several factors, including the size and scope of the contractor’s business, the location, the type of work performed, and the coverage options selected. On average, general contractor insurance can range from $500 to $2,000 per year for small businesses, while larger businesses may pay significantly more. 

The type and amount of coverage required or desired can also affect the cost of the policy. For example, a policy with higher coverage limits or additional types of coverage may cost more than a basic policy with minimal coverage. It’s important for contractors to obtain multiple quotes from reputable insurers and carefully review the coverage and cost of each policy to ensure that they are getting the coverage they need at a reasonable price.

Let us help you protect your business with general contractor insurance and keep your mind at ease. At Tivly, our 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: Sarah Reid, Licensed Agent

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