Insurance for Contractors

Construction is a difficult and unpredictable business. Contractors know that there are some things they can do little about--the weather, for example. But they also know that they can take certain measures to prevent issues such as theft, damage, subcontractor defaults or work site injuries from having serious financial consequences for their business. The most effective tool they use to minimize the impact of potentially costly events is insurance.

Knowing what types of insurance are available and which may be needed specifically for your business is critically important. Some owners and governmental entities will insist that your firm have certain types of insurance in place before they’ll consider a bid. The following overview of the different types of insurance available to contractors may help you determine the overall approach that is most appropriate for your business.

Surety Bonding

A surety bond is an agreement that binds you, the contractor, to comply with the terms and conditions of a contract. It typically deals with the performance of some or all stages of a construction project. In situations where your firm can’t successfully meet the terms of the contract, the surety assumes your financial responsibilities until the project is completed. You may find it impossible to obtain work on certain projects without first obtaining surety bonding.

General Liability Insurance

Lawsuits are a fact of life for businesses. Losing a lawsuit or agreeing to a settlement can be extremely expensive. General liability insurance protects your business assets in case your business is sued for something it did (or did not do) that caused a personal injury or property damage. Commonly, an accident or mistake may have occurred. Liability insurance may cover a variety of claims, including bodily injury, property damage, personal injury and even damage from slander or false advertising.

Workers’ Compensation Insurance

Businesses are generally required to carry workers’ compensation coverage. Workers’ compensation insurance protects you from worker lawsuits that result from injury related accidents on the job and may provide various benefits, including medical treatment and compensation for your injured employees’ lost income. If covered, employees receive workers’ compensation payments irrespective of who was at fault for the accident. If you have projects in more than one state, you should be aware that workers’ compensation laws vary from state to state.

Builder’s Risk Insurance

Builder’s risk insurance is intended to provide protection for construction projects under way. In addition, it generally covers any theft of or damage to materials used in a project, such as plumbing, lighting fixtures, electrical equipment or appliances.

Pollution Liability Insurance

Trade, general and specialty contractors must factor in the possibility of an accidental release of fuel oil, gases or chemicals from ruptured pipelines and fuel tanks on a project. Were that to happen on one of your projects, it’s possible that your business could be held liable and face substantial financial losses. Pollution liability insurance provides protection for contractors for a wide range of pollution risks. In addition, policies may provide insurance for third-party claims for bodily injury and property damage as well as for remediation costs that stem from pollution incidents.

Key Person Insurance

What would happen to your business if you, a partner, or another key employee were to die? Key person life insurance is designed to protect your business in such a scenario. If you operate your business with multiple partners, you should consider using life insurance to fund a buy-sell agreement. Disability insurance for you and your key people should also be a priority.

Property Insurance

Basic property insurance typically protects the physical assets of your business, such as buildings, inventory, furniture, documents, machinery and similar items.

Wrap-Up Insurance

Wrap-up insurance plans consolidate insurance coverage for general contractors and subcontractors who are working on a single project. It’s purchased and managed by a single sponsor, either the owner or the general contractor. A wrap-up policy typically extends to workers’ compensation, general liability, excess liability, builder’s risk and pollution liability insurance.

Umbrella Insurance

A business can use so-called umbrella coverage to protect itself from a major catastrophe or lawsuit. Umbrella insurance provides coverage in amounts in excess of the difference between your underlying general liability coverage and the amount awarded or settled upon up to the policy’s limit resulting from a lawsuit or other claim.