Construction insurance is a layer of protection for anyone involved with a project. There are different types of construction insurance for property owners, general contractors, and subcontractors. While you may only need to purchase certain types of insurance, you should know what is covered on any project you work on in the event you need to make a claim. If something happens to you, your employees, materials or tools, it may be covered by insurance.
The main types of construction insurance are:
Builder’s Risk Insurance
Typically, it is the responsibility of the general contractor to obtain builder’s risk insurance for a project. This insurance covers the physical materials of the construction site such as foundations, scaffolding, outdoor fixtures, trees, machinery, and other building material from fire, severe weather, theft and vandalism. It covers the property while it is under construction, and can be purchased for new homes, remodeled homes, and commercial property.
While builder’s risk insurance is not required by law, many property owners will require their projects be covered. A general contractor can include this cost in their bid and estimate for the project. Builder’s risk insurance usually costs 1-3% of the total project cost. The responsible party will pay a monthly premium spread out of the course of the construction. Builder’s risk insurance is purchased per project. This short term insurance is limited to the time frame for construction. Subcontractors will still be required to carry their own general liability insurance policies if the general contractor has builder’s risk insurance.
General Liability Insurance
Variations of general liability insurance are available to property owners, general contractors, construction companies and trade contract workers. This type of insurance covers both human error in the workmanship and bodily injury. General liability insurance will help if you are ever sued for a mistake, or if you or someone else gets hurt on the worksite.
Most projects will require that both general contractors and contract trade workers prove that they carry general liability insurance. Because the construction industry is inherently more dangerous than other professions, it is essential to have this insurance to protect yourself, your crew, and clients. General liability insurance will cover accidents that require medical care. It will also protect you from legal fees and the cost of replacing damaged materials.
The price of general liability insurance is dependent on the cost of the project you are insuring. The higher the cost of the materials and labor, the more expensive the general liability insurance premium will be.
Inland Marine Insurance
While you may not work on a boat, this insurance still applies to you. It is often referred to as tool and equipment insurance or contractor equipment insurance. You have spent a lot of money on the equipment you use on a work site. This equipment is essential to your trade. This insurance will cover equipment that is damaged or stolen, including equipment that has been leased or borrowed.
Inland Marine Insurance costs $2,000-$3,000 annually.
Contractor License Bonds
Bonds are similar to insurance policies and are purchased by the worker. It is a guarantee that the contractor will follow the guidelines of their professional license. The bond protects the customer and the general public from any errors made by the contractor. Some states require that you carry a contractor license bond to do any work in the state. Check with your local regulations to see what is required.
If a project has a bond, and the work is not completed satisfactorily, the surety company will provide the funds to hire a new crew to complete the work. Customers feel their investment in the project is protected with a contractor license bond.
A bond’s cost depends on the individual trade worker. Someone who has proven to be reliable, consistent, and trustworthy will pay less for bonds. They also range significantly depending on the size of the project and the anticipated risk, but are generally around 1% of the total project cost. Collateral is required to back up the potential pay-out of a bond.
Any business that employs others is required by law in some states to pay into workers’ compensation. If you are an employee (not a contract position), your employer pays the state workers’ compensation premiums. If you are ever hurt on the job, workers compensation may cover your medial expenses, lost wages, legal fees, or funeral costs.
Your business’s workers’ compensation premiums are based on the number of employees, the amount of hours they work, and the total payroll expenses. Workers compensation averages $5,000-$8,000 per full time employee per year.
Finding a local insurance agent that sells construction insurance is an important part of your business plan. This professional can help you find the right amount of insurance for any project at the best price for your budget. Insurance is a safety net that can protect you, your coworkers and employees, clients, materials. and the entire construction site. Making sure that your insurance plan will support your crew and business is important to growing a reputable business.