Build the Best Financial Fortress
with Construction Insurance
TLTR: Construction insurance is important for all parties involved. Why? Because construction sites are unpredictably hazardous, even if you follow all safety precautions. Let’s get into the details of construction insurance in this article.
The construction industry is no walk in the park. The U.S. Bureau of Labor Statistics reports that the industry has the highest rate of fatal work injuries compared to other industry sectors. It comes as no surprise that most contractors and construction companies won’t start their work without proof of insurance for the site.
True, construction insurance isn’t cheap. But neither is your construction project. If you’re willing to work in a site where someone could easily trip and fall, lose limbs, suffer spinal cord and brain injuries, or even lose their life, you should at least get insurance and stay financially safe.
In this blog
- What are the risks involved in the construction industry?
- How Can You Reduce Risk in Construction?
- What Is Construction Insurance?
- Do You Need Construction Insurance?
- What Is Covered by Construction Insurance?
- What are the Exclusions of Construction Insurance?
- How Much Is Construction Insurance?
- Best Construction Insurance Companies
- Before You Go
- Frequently Asked Questions (FAQs)
What are the risks involved in the construction industry?
The construction industry is loaded with fatal risks. Just ask the Occupational Safety and Health Administration (OSHA). Their statistics reveal that about 15 construction workers die every day.
Regardless of how strictly you follow your construction site safety rules, accidents happen almost every day. You’re working on a site where workers are often working dozens of feet off the ground. Not to mention the abundance of heavy machinery, potentially dangerous tools, and hazardous material spread around the site.
Here is a list of ten most common OSHA standard violations in the construction industry:
- Fall Protection
- Hazard Communication Standard
- Respiratory Protection
- Control of Hazardous Energy
- Powered Industrial Trucks
- Eye and Face Protection
- Machinery and Machine Guarding
In a place where many things can go wrong, you should get the right coverage to keep you safe. That’s why you need construction insurance.
How Can You Reduce Risk in Construction?
It’s important to understand the risks involved in your work site. The next step is to reduce them. Here are some tips for you to consider for your next construction project:
- Plan and organize your daily tasks.
- Regularly check the machinery and heavy vehicles used on the site.
- Always make sure the ladders are properly maintained.
- Don’t use machinery and vehicles on slippery slopes.
- To protect workers from falling from a height, make sure the platforms are safe to ride.
- Get construction insurance.
What Is Construction Insurance?
Construction insurance is specially designed insurance that covers the construction industry’s unique risks. A project manager may opt to protect many different aspects of the project—materials, vehicles, and workers—from various dangers like theft, injury, and damage. If you don’t know already, a single project may call for multiple types of coverage such as builders risk insurance, workers compensation insurance, or product liability insurance.
For example, your construction company is working on a construction site. The cost of the project is $2 million. Your construction site will contain construction workers and heavy machinery. What happens if one of these workers falls from the second floor of the building? What if the machinery breaks down, halts all construction activities and wastes a day of work?
Construction insurance, for your unique project, can provide coverage for your workers in such cases. Workers compensation insurance will cover the medical costs of your workers. Business interruption insurance will cover the loss of income due to the broken machinery. Commercial property insurance will help you repair it.
Do You Need Construction Insurance?
Construction insurance is a necessity for your worksite because:
- Specialized construction equipment should insure against damage, theft, and other liabilities.
- Contractors require general contractor insurance to protect them from both public and professional liabilities.
- There is a high possibility of injuries and accidents due to the nature of construction work, so your employees must be protected.
- Vehicles (specialized or otherwise) used in the business are susceptible to damage and wear-and-tear.
- Unfinished contracts can lead to lost revenue.
Construction sites are never free from hazards and accidents. Construction insurance assures you complete peace of mind so you can focus on your job.
What Is Covered by Construction Insurance?
You should know that you’re legally required to carry construction insurance. Here are some types of coverage you must consider before you start work:
Builders Risk Insurance
Builders risk insurance, popularly known as builder’s insurance or construction all-risk insurance, is specialized insurance that protects buildings from damage while they are under construction. The policy covers basic perils to the construction site such as theft, fire, and riots, but you can ask for endorsements such as extra expense, earthquake, flood, and more.
Business Owners Policy
Business owners policy is a combination of three essential commercial policies: commercial property, general liability, and business income.
Construction business insurance provides blanket coverage for a business against damages to third parties due to loss from business procedures (general liability), damage to the property that houses the business (commercial property), and protects the business from loss due to circumstances that hamper revenue flow (business income).
General Liability Insurance for Construction
General liability insurance is usually bundled in a BOP as it is a must for businesses. If you haven’t purchased a separate BOP, you need to get this policy for your business.
General liability coverage protects a business from third-party claims arising from bodily injury, personal injury, or property damage. Additionally, the liability coverage protects your business if it is at fault for third-party losses arising from daily operations, processes, or on-premises accidents.
Construction liability coverage is especially crucial for construction sites as they deal with multiple individuals working on hazardous materials and equipment at any given point.
Commercial Property Insurance for Construction
Commercial property insurance protects your business premises from fire damage, theft, vandalism, or other named perils. A commercial property policy doesn’t usually cover disasters like earthquakes and floods unless specific endorsements are added to the policy.
Commercial Auto Insurance for Construction
Commercial auto insurance is also usually bundled in your standard BOP. If you haven’t opted for a BOP, then your business-owned vehicles could be susceptible to losses. Commercial auto insurance is mandated by law in 48 states.
Of course, the construction industry makes extensive use of a variety of vehicles, ranging from hauling trucks to specialized construction equipment such as trailers or mixers. A commercial auto policy indemnifies these vehicles for all covered liabilities.
Workers Compensation Insurance for Construction
All states require any business to carry workers compensation insurance, except for Texas. Workers compensation covers your business and employees from injuries and deaths that might occur from work-related incidents. According to the Insurance Information Institute, construction laborers had the ninth-highest number of injuries or illnesses in the private sector in 2019.
Professional Liability Insurance
Unlike general liability insurance, professional liability insurance protects your business against losses and lawsuits that arise from errors or negligent professional advice. This policy is essential for contractors, lawyers, and architects.
The Millenium Tower is San Francisco’s tallest residential building. It also happens to be sinking and tilting to one side. In 2019, the tower’s tenants reached a tentative settlement against the tower’s architects and engineers after filing a lawsuit. As per Epiq, the net settlement amount paid to the class members is approximately $25.2 million.
Product Liability Insurance for Construction
Product liability insurance protects you from losses and damages incurred when products you either manufacture or supply are used.
Construction workers use various products and materials like cement, bricks, as well as concrete to do their work. If these workers find that their health is deteriorating because of lengthy exposure to these products, then the workers can sue the manufacturers of the products. If you manufacture or supply materials used in construction, then you need product liability insurance.
Should you require other coverage in addition to the ones listed above, all you have to do is get your insurance agent to bring you a tailored policy from the construction insurance company of your choice.
What are the Exclusions of Construction Insurance?
While your construction coverage can do many things, it is no Superman. You’ll need to address a few common exclusions to ensure you are covered against all risks. These exclusions include:
Claims-made or claims-occurrence exclusions are mutually exclusive—that is, you can select one or the other.
A claims-made policy insures against damages when claims occur and is made during the policy period. In contrast, a claims-occurrence policy insures against damages that occur when the policy is in force, regardless of the claim date. You should carefully review your policy and choose the exclusion that best suits your business.
A standard commercial general insurance policy might not cover contractors that oversee high-risk construction work (such as demolition, earthwork, or exterior finishes). These contractors require particular policies tailored to them that cover their unique risks.
Pollution Damage Exclusions
Pollution damage due to construction activities has become a significant concern in recent years. As such, certain construction coverage policies might specifically exclude pollution damage coverage. Special pollution liability insurance might be necessary for such a situation.
How Much Is Construction Insurance?
Construction insurance cost varies on several factors such as the size of your construction project, cost of the project, number of workers involved, types of machinery and vehicles, and more. A generally accepted estimate is that construction insurance will cost anywhere from 1% to 10% of the construction project’s total cost. However, here’s a general outline of what you can expect to pay for your coverage…
Construction Coverage reports that commercial general liability insurance will cost you close to $1,500 annually. Similarly, commercial auto insurance will be around $5,000 per vehicle involved. Expect to pay around $8,000 per employee for workers compensation insurance. Builders risk insurance will cost you a maximum of 8% of the total project cost.
Of course, the insurance company you decide to purchase the policy from will ultimately determine your construction insurance cost. Talk to an insurance expert regarding the best construction insurance company for you.
Best Construction Insurance Companies
Risk coverage is not an option. That’s why there are multiple construction insurance companies available to you. Let’s look at three of the best insurance companies in 2021 as per Investopedia.
Hiscox has an A rating from AM Best. The customer reviews are stellar. The company has competitive prices and offer online quotes. Hiscox caters specifically to independent contractors and small business owners, which may be what you’re looking for.
Chubb is rated fairly high for their customer satisfaction, and hold an A++ rating from AM Best. Your insurance agent may need to work with Chubb to get you a quote as they don’t offer online quotes. However, they do offer great coverage options at competitive prices.
If you’re looking for a good deal while working with an agent to build a tailored coverage, Chubb is the construction insurance company for you.
Travelers may well be one of the biggest construction insurance companies, with an A++ rating from AM Best. However, the customer service has been reported to be below average. The construction insurance company offers flexible coverage options at competitive prices. However, much like Chubb, you will not find their quotes online.
Before You Go
Property damage, bodily injuries, equipment failure, auto accidents, machinery malfunction, and delays in projects are all parts of the risk you take when you start a construction project. Why should it mean that your project is affected by them? Construction insurance coverage exists to make your work easier and without having to compromise on the time, quality, or cost.
If you’re looking to get insurance, find an agent in our very own insurance directory.
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Frequently Asked Questions (FAQs)
Am I liable for the work of my subcontractors?
Subcontractors are hired by construction companies or independent contractors for the time period of a specific construction project. Insurance companies may consider them to be your short-term employees. If you have workers compensation insurance coverage, your insurance can cover the liabilities of your subcontractors. However, it’s always a good idea to make sure your subcontractors have their own insurance coverage, as yours may not cover every risk.
How can I know which construction insurance company is right for me?
It’s always important to compare three or more insurance coverage options before you purchase one. However, it may be a hassle for you to do it on your own. An insurance agent can work with you to get the right policies to compare.
They can understand your risks, work with multiple companies to get multiple insurance quotes, and compare them for you. Usually, when it comes to the construction business, the insurance can go higher than you expect. Business insurance is usually related to your risks, which can mount as your business gets bigger.
Insurance agents will take all of your risks into consideration and get you the coverage you need.
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