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Insuring your construction company is all about managing the risk involved in your profession and transferring that risk to other entities, ie. your insurers. But more than that, it’s about protecting yourself and the people and things that make it possible for you to make a living effectively.

Contractor insurance also provides protection for your clients and your staff. Remember, mistakes made on the job can be as costly for your clients as they can be for you and your team. Giving your clients bad advice, being unable to complete construction projects by the deadline; these types of issues can cost your clients money, which will inevitably lead to claims being filed against you. Furthermore, having insurance in place that mitigates these risks can help you land more clients since many will not work with contractors who lack this type of coverage.

Of course, workers compensation insurance is mandatory in just about every state and is certainly something that no construction company can exist without. Construction is a high-risk industry and your workers need to be protected and given assurances that you will be able to help them financially recover from workplace-related injuries.

Insurance can also protect the public, especially if your construction projects take place in areas that are heavily populated. Accidents can happen when there are people constantly located in the vicinity of your construction site and insurance can help cover any financial losses sustained from accidents related to third-parties.

What Insurance Policies Do Construction Companies Need?

While every construction company potentially has a specific set of insurance needs, depending on its size and a variety of other factors, there are certain insurance policies that most should consider to be mandatory parts of their business insurance coverage:

Workers Compensation Insurance:
As already mentioned, workers compensation is state-mandated, which says a lot about its importance. In fact, even Texas – a state in which most businesses are permitted to opt out of workers compensation insurance – having this insurance is mandatory for all construction companies. This policy will pay for medical bills, rehabilitation, and wage losses to any of your employees that are injured on the job. If an employee is fatally injured on the job site, workers’ compensation will pay benefits to the employee’s family. If your injured employee sues you for negligence, a workers compensation policy will cover these legal costs as well.

Commercial Property Insurance:
All of your property that is necessary for performing your job will be covered by a good commercial property insurance policy. That includes offices you may have, workrooms on site, tools, furnishings, and more. If any of your covered items are damaged by any event that’s covered in the policy, the insurer will pay the insured value of the items so that you can replace or repair them. A good commercial property policy will also cover items that your business is renting

Professional Liability Insurance:
Often referred to as “contractors errors and omissions,” professional liability insurance covers you in lawsuits that could potentially result from mistakes that you or your employees may have made on a project. All of your defense costs resulting from a client claim related to potential professional negligence on your part would be covered. If you not only build but also design your construction projects, your business absolutely needs this type of insurance, since taking part in the creation process right from the start of the design phase increases your risk of being sued.

Surety Bonds:
We’ve already mentioned the need for construction companies and contractors to protect their clients; this is exactly what surety bonds do. If your company doesn’t deliver what was promised in the contract, then your insurer will be able to reimburse the client through surety bonds, of which there are four specific types.

Contractor License Bond:
This bond is required by state. Without it, you cannot get licensed to work as a contractor and you will be fined if you try to work without it.

  • Bid Bonds: These bonds guarantee compensation to your client if you fail to meet the terms of your contract.
  • Payment Bonds: These bonds guarantee payments for your subcontractors and suppliers. They also protect your clients from having to pay these costs if you are not able to do so. All contracts that exceed $100,000 require contractors to get payment bonds.
  • Performance Bonds: These bonds make sure that you complete construction projects as your contracts specify. If you don’t meet a deadline or the quality is subpar, your client will be able to make a claim on a performance bond.

Builders Risk Insurance:
This is a type of inland marine policy that insures the structures that your company is building, along with all of the materials that are onsite. Contractors are able to buy these types of policies on a per-project basis and they will usually cover damage caused to the site and all materials on site caused by inclement weather, natural disasters, fire, and vandalism. There is a bit of a debate in the construction industry over whether the contractor or the client should be taking out this policy. Regardless of who takes it out in the end, the policy will be able to cover both the builders and the developers, and even subcontractors.

Commercial Auto Insurance:
Vehicles are usually very important to the work of contractors, which means that all of the cars, trucks, and vans that you use in your construction work should absolutely be covered in your insurance coverage. A commercial auto insurance policy provides liability coverage that will pay for damages to third-party property or injuries resulting from accidents involving your business vehicles. You’ll also be able to get coverage for any medical bills of your own and damages that your vehicles may incur.

Equipment Insurance:
While builders risk insurance will cover the actual building site and the building materials, you still need to insure the equipment that you are using to build your projects. Also, it’s important to note that commercial property insurance will only cover equipment that is always being used at one particular site. Specialized equipment insurance is needed for the equipment that you are taking with you and using at multiple construction sites, such as forklifts, trailers, and other machinery that is mobile in nature. A good equipment insurance policy should also cover tools and equipment that you are renting.

What Does It Cost?

As is the case with most types of insurance, there are many different factors that need to be considered before determining how much your construction insurance is going to cost. Premiums will be determined by standard factors such as the size of your company, the number of employees working for you, whether there are subcontractors involved, how big your projects are generally, what your claims history looks like, the locations of your projects, and more.

Another aspect that could factor into policy price is the duration of your policy. If you have builders risk coverage for a project that is going to take you more than a year to complete, for example, then you will have to pay more for it. If you decide to buy insurance for a construction project that you have already started prior to getting the insurance, you might see higher premiums in this case as well.

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