The Ultimate Contractor Insurance Guide

With the many responsibilities and variables also comes the associated risks. As such, you need to protect yourself and your business by having the right general contractor insurance solution.

BY: MEGAN WRIGHT ON FRIDAY, APRIL 24, 2020
The Ultimate Contractor Insurance Guide

From directing workers and managing cash flow to keeping your projects on track and handling disputes — you’re doing it all as a general contractor.

With the many responsibilities and variables also comes the associated risks. As such, you need to protect yourself and your business by having the right general contractor insurance solution.

There are many kinds of insurance policies available to contractors. It’s important to know their differences so you can get the right level of coverage that meets the needs of your business and the nature of your projects.

Here are the most common and useful types of insurance policies for general contractors:

Business Owner's Policy

A business owner’s policy provides general liability coverage, as well as business property insurance and business interruption insurance. This is a standard policy that all businesses should have.

For example, it can protect your interests if a fire destroyed your warehouse full of materials or if your equipment was stolen. However, the extent of the coverage varies from one provider to another so make sure you understand the specifics of your policy to avoid any gaps and unpleasant surprises.

Business/Commercial Auto Insurance

A commercial auto insurance policy covers auto-accident associated damages that occur when you or your employees are traveling to and from a job in a company vehicle. Since most, if not all, general contractors have a fleet of vehicles in their businesses, commercial auto insurance is a must.

You should also consider getting non-owned policies for employees who drive their personal vehicles while they’re on the job.

Contractors Equipment Coverage

This type of policy covers tools and equipment while they’re in transit to and from job sites, as well as damage or loss that occurs due to fire, vandalism, and theft. Such coverage is essential for general contractors because you have invested heavily in your equipment and any damage or loss could be financially devastating.

Make sure you understand whether your policy covers only owned equipment or includes rented and borrowed equipment. Also, pay attention to the specifics. For example, if your policy doesn’t cover waterborne job sites, then any damage done to your equipment when you’re operating on a barge won’t be covered.

Employee Dishonesty Coverage

If an employee theft occurs, this coverage helps you recover the money and property lost. For example, you’re protected if an employee embezzles money from your company or steals tools or materials from a job site or your warehouse.

To qualify for a claim, the losses need to occur within the policy period. You also need to prove that you have incurred financial losses while the employee is benefiting financially.

Errors and Omissions or Professional Liability Insurance

Negligence, errors, and omissions during the building process do happen from time-to-time and this policy protects you against the associated claims. Although this type of coverage is optional, it’s highly recommended for all general contractors.

However, keep in mind that the damage must be unintentional and occur after a job is completed for the claim to be covered. Evidence of risky shortcuts or known negligence will cause your claim to be denied. Also, this policy doesn’t cover the work of subcontractors.

Rented or Leased Equipment Coverage

This type of policy protects your business in case leased or rented equipment is damaged or destroyed by covered events. Your contractor equipment policy may already offer this coverage so review your policy carefully to avoid paying twice for the same benefits.

Builder’s Risk Insurance

Builder’s risk insurance is a type of property insurance specifically for buildings under construction. This coverage begins at the policy effective date and ends once the project is completed and the property is ready for occupancy. Each builder’s risk policy is unique because every construction project is different. However, most builder’s risk policies cover property loss due to theft, vandalism, fire, hail, lightning, hurricane and explosions.

These policies cover structures and buildings while they are under construction, as well as, supplies, materials and equipment. Coverage can also be extended to costs such as rental income, interest on loans and real estate taxes that are incurred when a project is delayed due to a loss that is covered.

Surety Bonds

Surety bonds are a form of insurance but don’t work like typical insurance policies. A surety bond is a three-party contract comprised of the Principal (contractor), the Obligee (owner) and the Surety. These work differently on a private versus public project. On a private project, it ensures a project is completed while providing support to the contractor. For public projects, surety bonds are used to prequalify contractors, provide payment protection for subcontractors and protect project completion for the public.

Umbrella Liability Insurance

It’s often not easy to cover all your bases since insurance policies have limits and potential gaps. As such, contracting businesses of any size should purchase an umbrella policy in case your claims exceed the limits of or aren’t covered by other liability policies. This can help prevent those gaps and limits from creating a financial disaster for your business.

Products and Completed Operations Liability Insurance

This policy offers liability coverage for building projects you have completed while it’s in effect. Although you’d be protected under a wide range of circumstances, the policy must remain active for your business to be covered.

For example, if the construction of a deck is completed in the summer and you cancel the policy in the fall, then the work is no longer covered. If someone was injured in winter due to poor workmanship and sued your company, the claim would be denied.

Inland Marine Insurance

Most commercial property insurance policies don’t cover property or equipment that is mobile, stored at a job site, or left in a vehicle. However, as a general contractor, you’d likely be moving tools, equipment, and materials to and from job sites frequently and need proper coverage for those circumstances.

Inland marine insurance, also called mobile equipment coverage, protects property in transit, buildings under construction, mobile equipment, and more. Even if some of your policies may cover your property, this type of policy helps fill in gaps or coverage limits.

Workers' Compensation Insurance

This is required by most states for any company that has employees. This policy covers medical treatment and lost wages for employees injured on the job. This is particularly important for any business owner in the construction industry because of the high likelihood of work-related injury in this sector.

Navigating Insurance Coverage For Your General Contracting Business

While you’re not required by law to have most of the insurance policies listed above, it’s advisable to protect your interests as much as possible. If you can’t afford to replace your equipment, pay for potential litigation costs, or compensate for injuries caused by your work — you should get the appropriate coverage.

While some policies may cover subcontractors, you should hire those that have insurance of their own, which can help fill any gap and limitation in your policy. Also, if you decide to add new offerings to your business, make sure to evaluate your current coverage to confirm that the new services are protected by your current policies.

Purchasing insurance can be costly but it shouldn’t prevent you from giving your business the proper protection. You can take steps to lower your premium, such as bundling policies, improving safety on your job sites, using preventive measures to deter theft and vandalism, and adding GPS tracking to your equipment and vehicles.

Getting the appropriate insurance policies with the right amount of coverage can be challenging since every contracting business is different. Work with a third-party insurance expert, which helps you combine different policies and develop a customized insurance solution that addresses your unique risks and challenges.

About the Author

Megan Wright

Megan Wright is the Chief Editor for ChamberofCommerce.com. As a small business expert, Megan specializes in reporting the latest business news, helpful tips and reliable resources, as well as providing small business advice.

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