7 Construction Insurance Types You Need for Your Business
Get informed about the different types of insurance coverage you need to protect your construction business today.
Key Takeaways:
- Insurance is essential for a construction company
- Many different insurance types exist
- The types of insurance you need depend on the job
- Various aspects determine how much you’ll pay.
Construction insurance is an umbrella term of different insurance policies designed specifically to protect construction businesses from risks related to their work. It protects your contractors, employees, and business from loss or damage caused by negligence claims or other issues.
The risky and expensive nature of construction projects due to the high amount of materials, physical labor, and the potential for accidents or delays means that having the right insurance is essential for success. Whether you’re a General Contractor, architect, or project manager, understanding the different types of construction insurance is vital to protecting your business from costly losses, damages, or lawsuits.
Why you need construction insurance
The biggest benefit of having construction insurance is that it helps protect you from financial losses due to accidents, property damage, or lawsuits. Other benefits include:
- Peace of mind: You can sleep better at night knowing that you’re protected in case of an accident or lawsuit.
- Satisfying contractual requirements: Many contracts require construction insurance to be in place before work on the project can begin. It serves as a guarantee that the project will stay funded and secure.
- Complying with state and federal laws: Depending on your state and the scope of your project, you may need to purchase certain types of insurance to stay compliant with local and federal regulations.
- Business continuity: You don’t have to worry about the future of your business if an accident occurs or a lawsuit is filed against you. Construction insurance helps you stay afloat in the face of disasters.
- Improved credibility and reputation: Insurance strengthens your reputation with clients, partners, and other business associates. You will win more projects and be seen as a reliable, secure business.
Without construction insurance, you could be responsible for the total cost of any loss or damage that your business incurs. It helps to know the different types of construction insurance and what each one covers to determine the best coverage for your business.
7 construction insurance types savvy contractors need
You might require different types of construction insurance depending on the size and scope of your project, your state’s regulations, and the contractual requirements of the project.
1. Professional liability insurance
Professional liability, or errors and omissions (E&O) insurance, protects construction professionals from claims of negligence, errors, or omissions in their work that cause financial losses to their clients. It covers costs you may incur from the defense process, legal fees, and any settlements or judgments if your business is sued.
For instance, professional liability insurance would cover the expenses if a structural engineer is sued for a design flaw that caused injury or led to costly repairs. It, however, doesn’t cover property damage or physical injuries.
2. Commercial general liability (CGL) insurance
CGL insurance protects construction businesses from claims of bodily harm, property damage, personal injury, and advertising injury during their work. It covers medical expenses for those injured on-site, legal fees involved in defending or settling a claim, and financial losses due to property damage. It also protects against third-party claims of libel, slander, copyright infringement, and other types of advertising injury.
3. Builder’s risk insurance
Builder’s risk insurance is specialized coverage designed to protect ongoing construction projects from losses due to fire, theft, vandalism, weather-related causes such as storms and hurricanes, falling objects, and other fortuitous events that could damage materials or the structure itself.
It’s a standard requirement of most construction contracts and covers the General Contractors, subcontractors, project managers, and property owners. Typical options under a builder’s risk insurance include:
- Foundations
- Building materials
- Outdoor fixtures
- Paving and fencing
- Structures such as scaffolding, walls, and roofs
- Lawns and trees
When filing a claim, you must provide a copy of the bill of lading, invoices, and other documents showing the cost of the damage or lost materials.
4. Workers’ compensation insurance
Workers’ compensation insurance is a state-mandated type of insurance that covers medical expenses, lost wages, ongoing recovery costs, and death benefits for employees injured while on the job. It protects your business from lawsuits filed by employees for injuries or illnesses sustained while working and shields you from any financial losses related to the claim. The amount of compensation you can receive varies by state, so it’s essential to understand the nuances of your state’s workers’ compensation laws.
5. Vehicle insurance
Unlike other construction insurance types exclusively designed to cover construction projects, vehicle insurance covers any motorized equipment or vehicles used for business operations. This includes trucks, forklifts, trailers, concrete mixers, and other vehicles. It protects you from vehicle repair costs, medical costs for injuries sustained in an accident, and lawsuits related to auto accidents. You can choose from these coverage options:
- Liability coverage: Protects your business and employees from financial losses due to accidents caused by employees.
- Medical payments coverage: Covers injury-related expenses, including ambulance costs, hospital fees, medical bills, and death expenses from a covered accident.
- Physical damage coverage: Covers repair and replacement costs for company vehicles damaged in an accident. Comprehensive coverage extends to non-accident causes such as fire, theft, and vandalism.
- Uninsured motorist coverage: Covers medical bills and financial losses when an uninsured driver causes an accident.
You must determine the total value of all vehicles, equipment, and associated tools you plan to use in your business operations to help you choose the right level of coverage.
6. Pollution and environmental insurance
Pollution and environmental insurance cover clean-up costs, bodily injury expenses, legal defense fees, governmental fines, and other costs related to contamination of land, air, or water from construction activities. This type of insurance is recommended for businesses that handle hazardous materials and perform demolition, excavation, or soil remediation.
7. Inland marine insurance
Transporting materials, tools, and equipment to a job site can be risky and lead to financial losses or damages. Inland marine insurance covers these items from theft, destruction, or damage in transit. It also covers mobile equipment such as forklifts, excavators, cranes, property in a storage facility or at a repair shop, computer systems, and other electronic equipment. The policy will cover the items at fair market value or replacement cost for new or used items.
Cost of construction insurance
There is no single answer to the cost of construction insurance as it varies depending on the size and scope of your project, coverage limits and deductibles you choose, the location of your business or project, and the experience of your company. However, there are average annual premiums for each type of insurance.
| Construction insurance type | Cost |
| Professional liability | $800-$2,000 |
| Commercial general liability | $500-$1,500 |
| Builder’s risk | 1-5% of the total project cost |
| Workers’ compensation | $5,000-$8,000 per employee, depending on the state |
| Vehicle | $800-$5,000 per vehicle |
| Pollution and environmental | $2,500-$5,000 |
| Inland marine | $2,000-$3,000 |
When choosing an insurance provider, consider the cost, financial strength, coverage, and customer service. Compare offers from different insurers and look for multi-policy discounts, additional coverage options, and long-term customer loyalty discounts. Bundling your insurance coverage with one insurer can also help you save money.
Hire fully insured General Contractors for your project
Proper construction insurance protects your business from financial losses, costly delays, and legal fees. It also safeguards your employees, clients, and other contractors from liabilities. As such, hiring fully insured General Contractors for your project is essential.
RPC General Contractors is a team of experienced professionals with the right construction insurance and a track record of success. We handle various construction projects, including commercial and high-end residential builds, from design to completion. Let’s work together and make your project successful by contacting us today for a free quote.