Building contractors insurance. A complete guide

Introduction to building contractors insurance

Several types of insurance are designed to protect developers, property owners, and contractors through the many stages of construction projects. In most cases, specific construction insurance policies are required for many of these projects.

In the following article, we'll explain what you need to know about building contractors insurance, the common types of policies available to you, and when you might need them.

In addition to reading our guide about building contractors insurance, make sure you check out the reputable insurance companies we've listed at the end of this article.

Here is a summary of what we will cover in our guide:

What is building contractors insurance?
Who needs building contractors insurance?
Types of building contractors insurance
General liability insurance for contractors
Builder's risk insurance.
Workers' compensation insurance.
Professional liability insurance for contractors
Building contractors insurance requirements.
Building contractors insurance cost.

What is building contractors insurance?

Building contractors insurance, also known as construction insurance, is an umbrella term that describes a broad set of insurance policies.

These construction policies have been designed for developers, property owners, and contractors to provide protection from the risks and losses involved with construction projects.

The term "construction insurance" or “ building contractors insurance” refers to insurance related to construction projects, but it is not an actual form of insurance in itself.

Building contractors insurance is comprised of various policies, and several factors dictate the types of insurance coverage needed for a given project or business.

These factors include but are not limited to:

The person's role on the project (i.e., property owner, subcontractor, contractor, etc.).
The type of entity to be insured (business or individual).
The property type as above.

Essentially, a contractor should have various business insurance coverages to protect against various claims that may arise during work, for example, general public liability and employers' liability. We will cover this in more detail in the next couple of sections.

Who needs building contractors insurance?

Who needs building contractors insurance? There is no straightforward answer and no one-size-fits-all to this question.

However, as a general rule, it’s safe to say that contractors, subcontractors, independent tradespeople, and any small or large organization involved in construction should carry building contractors insurance.

Types of building contractors insurance

As a project manager or a construction business owner, you should consider the following types of building contractors insurance for your company.

General liability insurance

Protecting against some of the most common risks and hazards construction businesses face, general liability insurance is a vital component of a building contractors insurance package.

These risks that are covered by general liability insurance include:

Third-party bodily injury.
Third-party property damage.
Copyright infringement and other advertising injuries.
Damages caused by your completed construction or installation.

Your commercial general liability policy would cover the above costs such as medical expenses, and property repair costs if one of these events occur at your work site.

Due to the high risk of physical damage to property and injuries in construction, general liability should be an essential part of your insurance coverage for construction.

What’s more, your clients or employers may even require this coverage from you before you start working on any construction projects.

Builders risk insurance

This insurance type, builders risk insurance, covers the expenses if a building or structure is damaged while still under construction.

For example, the unfortunate damage caused by:

Fires.
Vandalism damages.
Extreme weather events.

Most business insurance construction policies protect against claims surrounding equipment and people, but most won't cover unfinished structures and buildings.

Builders risk insurance bridges the gap between bodily injury and property damage policies, while also ensuring your business isn't paying out expenses during any stage of the construction process.

A builders risk insurance policy is a safety net for both you and your clients, and it's a beneficial addition to your contractor insurance package.

Workers' compensation insurance

Workers' compensation insurance will cover your employees' medical expenses and lost earnings if they are involved in a job-related injury.

Most sites require any construction company or contractor to carry workers' comp insurance, as it’s also known, even if they only have one employee.

This insurance policy protects against the risks involved in the physically demanding work of the construction industry. If one of your employees were to get injured on the job, you don’t want to be held responsible for the expenses resulting from medical bills and lost wages.

Workers' compensation insurance protects all parties involved by covering those costs.

Additionally, employer liability insurance is included in most workers' compensation policies, and it can help cover employee lawsuits if unsafe working conditions were claimed as a reason for their injury.

Construction all risk insurance

This insurance type is also known as builders risk insurance, as mentioned above, and also known as course of construction insurance (COC).

As mentioned above, this is coverage for structures and buildings while under construction.

Commercial auto insurance

An auto accident can be expensive, especially if another party is injured.

A commercial auto insurance policy will cover the costs of medical bills, property damage, and legal expenses if one of your company vehicles is involved in a collision.

Most sites require contractors and construction businesses to carry commercial auto insurance for business-owned vehicles, but like most policies, the amount of coverage needed varies depending on the insured and employer, for example.

It's wise to have enough insurance to meet the amount you expect to pay in an accident and your local authority's requirements.

Professional liability insurance

Professional liability insurance, or errors and omissions (E&O) as it's also known, protects you from claims about the quality of your work, or the work of subcontractors you hired.

As a construction worker or business, you agree to provide a certain quality of work to your client within a specific timeframe. If your company can't meet that deadline for whatever reason, or cannot meet the standards expected from the construction project, your client could file a lawsuit against you.

Professional liability insurance covers legal expenses, including lawyer fees, court fees, and settlements, if you're at fault or not.

Contractor's tools and equipment insurance

This coverage, contractor's tools and equipment, covers lost, stolen, or damaged tools so you don’t end up paying thousands to repair or replace them.

This type of policy typically covers a wide variety of equipment under five years old. Hand and power tools are usually covered in this policy, such as wrenches, saws and hammers, nail guns, drills, and circular saws.

If you need to file a claim for lost, stolen, or damaged tools - your insurance provider will cover the cost to repair or replace them up to your policy limit. That limit is typically very low for business insurance – in the region of $10,000.

More valuable property, such as excavators or forklifts may need to be covered with inland marine insurance.

Construction bonds

Also known as contract bonds or contractor bonds, construction bonds exist as a promise that certain aspects of a contract, or the whole construction project itself, will be completed.

Construction bonds are essentially agreements, similar to insurance policies to guarantee that a contractor will carry out their responsibilities as agreed and comply with their contractor license regulations.

The following are the several types of contract bonds:

Performance bonds ensure that contractors meet these standards and finish the project as laid out in the contract.
Bid bonds guarantee the project bid proposal is legitimate and that contractors can support the project financially if their bid is chosen.
Maintenance bonds – these bonds protect the project owner from faulty workmanship for a limited time after the contractor's work is complete. They’re also known as warranty bonds.
Payment bonds – these bonds guarantee the contractor can provide the payments to subcontractors, suppliers, and laborers.
Subdivision bonds - promise the local municipality that the bondholder will work on the property in accordance with local guidelines, requirements, or laws.
Supply bonds – supply bonds aim to ensure that the suppliers will deliver supplies, etc, as specified contractually.
Site improvement bonds – similar to a subdivision bond, but this applies only to existing structures that are being renovated.

Inland marine insurance

Inland marine insurance is a broad insurance term that reaches beyond the construction industry.

Its name was born from times when time ocean-bound materials and vessels were primarily used, but today, inland marine insurance coverage has evolved to cover many types of property. This includes property commonly used in different locations, property in the custody of a storage facility or repairman, property in transit, and even computer equipment.

For the construction industry, this insurance applies primarily to the tools of the trade, and due to that, inland marine insurance is commonly referred to as "contractor equipment insurance" or "tool and equipment insurance" in the construction industry, as listed above.

This insurance type covers various assets used by construction professionals, such as:

Hammers, drills, electric saws, materials, etc, (contractor's tools, clothing, and supplies).
Excavators, loaders, forklifts, cranes, etc, (mobile equipment).
Leased tools or mobile equipment such as forklifts, (leased or borrowed equipment).
Laptops, tablets, private project data, (computer equipment).

Policies will typically cover items at market value, or at replacement costs.

Building contractors insurance requirements

While looking into the various options for building contractors insurance, you might have wondered if it’s necessary.

To answer that query, there are many cases when it's not only necessary but it's required.

For example, commercial auto insurance is required by law, and workers' compensation is often required by law, although, there may be certain requirements depending on the number of employees and other factors.

Most other types of building contractors insurance will not be required by law, however, as we've mentioned, many construction contracts will require employees and contractors to have the correct insurance to cover their projects.

Those who work directly with homeowners usually won't be required to have insurance for the projects they take on, such as smaller contractors. However, large-scale projects almost always require contractors and businesses to have insurance coverage suited to the job at hand.

The project sponsor almost always covers these costs for large-scale projects, but nevertheless, this isn’t always the case and you should ensure you’re covered.

The minimum requirement for these project contracts will be general liability, builders risk, and workers' compensation insurance. In rare cases, inland marine insurance and surety bonds will also be required.

The increased protection provided by professional liability coverage and an excess liability/umbrella policy won't usually be required by the project contract, however, this coverage can financially protect contractors and businesses caught in legal battles.

Building contractors insurance cost

There isn’t one straightforward answer for the cost of building contractors insurance as this insurance type refers to many types of policies. Moreover, those policies cover certain situations while being offered by many different policyholders, which affects what you can expect to pay.

In addition, there are additional premiums and customizable options available, dependent on the amount of coverage needed for the insured’s requirements.

Factors that affect the cost of building contractors insurance

As noted, several factors can affect the cost of building contractors insurance policies.

Even though these policies which make up building contractors packages are customizable, vary in what they cover, and are typically sold separately, they are usually influenced by the same factors, which are:

Size of the business or project.
Coverage limits and deductibles.
The credit history of the business and insured.
Business or contractor's level of experience.
Location of the project, business or contractor.

To summarize, these factors influence the underwriter’s decision to estimate the losses and risks associated with insuring you, your project, or your business.

Average cost of building contractors insurance

Despite the above factors influencing costs, it is possible to get an approximation of the total building insurance cost.

To explain this further, the following table shows an estimation of annual premiums for various construction insurance coverage types:

Insurance	Average Annual Premium	Required?
Builders Risk	1-5% of project cost	Usually
Commercial Auto	$800-$5,000 per vehicle	Always
Professional Liability	$800-$2,000	Recommended
Commercial General Liability	$500-$1,500	Usually
Umbrella / Excess Liability	$1,000-$3,000	Recommended
Workers’ Compensation	$5,000-$8,000 per employee	Usually
Inland Marine	$2,000-$3,000	Sometimes
Surety Bonds	$100-$10,000	Sometimes

The costs shown in this table are a summary of the average costs for these insurance policy types. The ranges for what you can expect to pay are broad, however, the varied amounts reflect the various factors which influence the estimation of these costs.

Generally speaking, contractors with higher risks are subject to higher insurance costs. For example, the costs for general liability insurance will vary by the type of project and the insured’s claims history. In addition to that, construction contractors pay some of the highest rates of any profession for general liability due to the risks involved in the trade.

While building contractors insurance policies can vary widely in detail and in costs, lower-risk contractors generally cost less to insure.

To receive an accurate summary of costs for your business, we have included information for you to receive free quotes and links in the next section.

Building contractors insurance quotes

When considering building contractors insurance for your business, we recommend that you receive quotes to understand your options.

All of the following businesses’ can provide uncomplicated quotes while offering you a high level of service.

Building Contractors Insurance USA

For companies registered in USA you can receive quotation from Next Insurance.

Building Contractors Insurance UK

For companies registered in UK you can receive quotation from Simply Business.

Building Contractors Insurance Cyprus

For companies registered in Cyprus you can receive quotation from Pitsas Insurance by completing the quotation.

At Pitsas Insurances, our team of insurance experts can help you secure customized building contractors insurance while working with your financial budget.

Pitsas Insurances

Limassol,Cyprus

08.11.2022