Construction insurance. What is construction insurance?

Introduction to construction insurance

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

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

Whatever your reason for researching insurance for construction, make sure you check out the reputable insurance companies we've listed below.

Here is a summary of what we will cover:

What is construction insurance?
Who needs construction insurance?
Types of construction insurance.
General liability insurance for construction.
Workers' compensation insurance for construction.
Builder's risk insurance for construction.
Professional liability insurance for construction.
Contractor’s tools and equipment insurance for construction.
Construction bonds for construction.
Inland marine insurance for construction.
Construction insurance requirements.
Construction insurance cost.

What is construction insurance?

Construction insurance is an umbrella term that describes a broad set of insurance policies designed for developers, property owners, and contractors that provide rounded protection during construction projects.

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

There are various factors that dictate the type of construction 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 construction company is a contractor and all contractors should have various business insurance coverages, for example, general public liability for construction and employers' liability. We will cover this over the next couple of sections.

Who needs construction insurance?

There is no straightforward answer and no one-size-fits-all.

Contractors, subcontractors, and independent tradespeople should carry commercial constructors insurance, although the type of insurance varies greatly depending on the insured's needs.

Types of construction insurance

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

General liability insurance for construction

General liability insurance protects against some of the most common risks and hazards construction businesses face. These 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 cost of any medical bills, and any property repair or replacement costs should one of these events occur at your work site.

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

Your clients or employers may even require this coverage before you start working on any construction projects.

Make sure your general liability insurance includes products-completed operations coverage, also known as product liability insurance. This coverage type provides financial protection against claims over bodily injury or property damage caused by your construction project.

Workers' compensation insurance for construction

Workers' compensation insurance covers any medical expenses and lost wages for your employees if they experience a job-related injury or illness. Most places require any construction company or contractor to carry workers' comp insurance, even if they have one employee.

Construction is a physically demanding industry with many risks of injury. You could be held responsible for the resulting medical bills and lost wages if one of your employees were to get injured on the job, and you would be out of pocket.

Workers' compensation insurance protects everyone involved by covering those expenses.

Additionally, employer liability insurance is included in most workers' compensation policies. This can help pay for employee lawsuits if an employee claims unsafe working conditions as a reason for their injury.

Builder's risk insurance for construction

Builders' risk insurance covers damage costs while a building or structure is still under construction. For example, the damage caused by:

Fire.
Vandalism.
Weather damages.

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

Builder's risk policies cater to that niche to ensure your business isn't paying for damage expenses before your work is even completed.

A builder's risk insurance policy provides peace of mind to both you and your clients, and it's a beneficial addition to your contractor insurance package.

Construction all risk insurance

This insurance type known as construction all risk insurance also goes by the name builders risk insurance, as mentioned above. It’s also known as course of construction insurance (COC).

As above, this is insurance coverage for structures and buildings while they are under construction.

Commercial auto insurance for construction

An auto accident can be extortionate to cover, 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 an accident. This also includes other vehicles used during construction projects.

Most places require contractors and construction businesses to carry commercial auto insurance for business-owned vehicles, but the amount of coverage required varies.

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

Professional liability insurance for construction

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

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

Professional liability insurance covers the legal expenses over the quality of your work, including lawyer fees, court fees, and settlements, if you're at fault or not.

Contractor's tools and equipment insurance for construction

Your company could end up paying thousands to repair or replace lost, stolen, or damaged tools, and that's what contractor's tools and equipment insurance covers.

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

If you need to file a claim - 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.

Both policies only cover movable equipment you bring to job sites, whereas commercial property insurance protects a building you own and its contents.

Construction bonds for construction

Construction bonds are also known as contract bonds or contractor bonds. These bonds exist as a promise that certain aspects of a contract or the whole construction project itself will be completed if accepted.

Construction bonds are agreements, similar to insurance policies to guarantee that a contractor will comply with their particular contractor license regulations.

The following are the several types of contract bonds.

Bid bonds – ensure the project bid proposals' legitimacy and that contractors can support the project financially if their bid is chosen.

Payment bonds – guarantee the contractor can provide the payments to subcontractors, suppliers, and laborers.

Performance bonds – ensure the contractors meet these standards and finish the project as laid out in the contract.

Maintenance bonds – protect the project owner from defective workmanship for a limited time after the contractor's work is complete. Maintenance bonds are also known as warranty bonds.

Supply bonds – so suppliers will deliver supplies, etc, as specified contractually.

Subdivision bonds – to promise the local municipality that the bondholder will work on the property in accordance with local guidelines, requirements, or laws.

Site improvement bonds – similar to a subdivision bond, but applies only to existing structures that are being renovated.

Inland marine insurance for construction

Inland marine insurance is a blanket term for insurance that reaches far beyond the construction industry. The name suggests a time when ocean-bound materials and vessels were primarily used.

Today, inland marine insurance coverage has evolved with the times to cover many types of property. This includes property commonly used in different locations, property in transit, property in the custody of a storage facility or repairman, and even digital information and computer equipment.

For the construction industry, this insurance applies primarily to the tools of the trade used by developers and contractors. Due to that, in the construction industry, inland marine insurance is commonly referred to as "contractor equipment insurance" or "tool and equipment insurance", as noted above.

As you can see, these insurance policies cover many types of assets used by construction professionals, such as:

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

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

Covered incidents inland marine insurance include:

Stolen equipment.
Equipment or tools damaged while being transported.
Equipment damaged in a natural disaster at a job site.

Plus, it can cover costs that might be associated with losses or damages, such as:

Pollution cleanup following a covered incident or debris removal.
Any costs caused by delays resulting from a covered incident.

Construction insurance requirements

While looking into the options for construction insurance, many of us will have asked ourselves: is construction insurance necessary?

In short, there are many cases when it's not only necessary but it's required.

For example, commercial auto insurance is required by law, and there are usually minimum set requirements for auto liability insurance.

Furthermore, workers' compensation is often required by law, however, the specific requirements will vary by the number of employees and other factors.

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

But large-scale projects almost always require contractors and businesses to carry insurance coverage, for example, universities, governments, and big companies who carry out large construction projects.

The project sponsor almost always covers these costs for large-scale projects, but nevertheless, the contractor should ensure they're covered.

The minimum requirement for these project contracts will be a general liability, builders risk, and workers' compensation insurance. Rarely, 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 normally be required by the project contract. However, this coverage can safeguard contractors and businesses caught in legal battles.

Construction insurance cost

The cost of construction insurance doesn't have one straightforward answer as this insurance type refers to many types of policies. Not only that, but these policies cover many different types of situations while being offered by many different policyholders.

In addition, the contractors who want to purchase the policies have customizable options regarding the amount of coverage they want and need.

Factors that affect the cost of construction insurance

As mentioned, several factors can affect the cost of construction insurance policies.

Even though construction insurance policies are customizable, vary in what they cover, and are 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.

In summary, these factors estimate the losses and the risks associated with insuring you, your project, or your business.

Average cost of construction insurance

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

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
Worker's 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 that reflects the average costs for these insurance policies. The estimate ranges are broad, and the varying amounts reflect the various scope of projects and backgrounds of experience, for example.

Typically, contractors with higher risks are subject to higher insurance costs. For example, the costs for general liability insurance will vary by the type of projects and the insured’s track record of claims. Moreover, due to the risks involved - construction contractors pay some of the highest rates of any profession for general liability.

While policies can vary widely in cost, lower-risk contractors generally cost less to insure.

Construction insurance quotes

When considering what types of construction insurance are needed for your business, we recommend receiving quotes to know your options.

The process will be easy and hassle-free with the following businesses. All can provide simple quotations while offering a high level of service.

Construction Insurance USA

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

Construction Insurance UK

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

Construction Insurance Cyprus

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

Our team of insurance experts can help you secure customized construction insurance while working with your financial budget.

Pitsas Insurances

Pafos, Cyprus

03.11.2022