Construction Insurance: A Builder’s Best Friend

Does a fraction of your project’s cost sound like the right price to protect your construction company? If the answer is yes, then congratulations! You know how vital construction insurance is for your business. The construction industry is full of risks that are as diverse as the projects themselves. It’s crucial to take all precautionary measures at your project sites, but having insurance coverage is still a must.  

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What Is Construction Insurance? 

Construction insurance is a product designed to cover both the construction industry’s standard and unique risks. A project manager may opt to protect many different aspects of the project, such as 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 coverages like builders risk insurance, workers compensation insurance, or product liability insurance.  

Why Is Construction Insurance Necessary?    

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 damages and wear-and-tear.
  • Unfinished contracts can cause lost revenue.

Construction sites are never too safe from hazards and accidents. Construction insurance assures you complete peace of mind while focusing on delivering beautiful, and functional spaces for your clients.

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Do You Need Construction Insurance?  

While you build safe living and working spaces for your clients, it’s important to also create a safe work environment at your site. Construction insurance is not a choice; it is mandated by law in most states. Insurance law states that any construction business must have insurance, and the coverage must indemnify all liabilities.

However, one should not get construction insurance just as a law mandated add-on. It provides coverage from all possible risks, allowing policyholders to focus on completing their projects. Accidents and perils do not discriminate between small-time contractors or large-scale construction companies, thereby making sense for all construction company owners to get insured.

What Policies Fall Under Construction Insurance?  

Federal law mandates the following policies as a must for construction businesses:

Builders risk insurance

Builders risk insurance, popularly known as builder’s insurance or construction all-risk insurance, is specialized insurance that protects buildings from damages 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, etc.

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), damages to the property that houses the business (commercial property), and protects the business from loss due to circumstances that hamper revenue flow (business income).

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General liability policy 

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.

A general liability policy protects a business from third-party claims arising from bodily injury, personal injury, or property damages. Additionally, it protects your business if it is at fault for third-party losses arising from daily operations, processes, or on-premise accidents.

Construction liability 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 

Commercial property insurance protects your business premises from fire damage, theft, vandalism, or other named perils. A commercial property doesn’t usually cover disasters like earthquakes and floods unless specific endorsements are added to the policy.

Commercial auto insurance 

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 

All states require any business to carry workers compensation insurance, except for Texas. The policy 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 9th 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.

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Product liability insurance 

Product liability insurance protects you from losses and damages incurred when products you manufacture or supply are used.

Construction workers use various products and materials like cement, bricks, and concrete to do their work. If these workers find that their health is deteriorating because of lengthy exposure to these products, the manufacturers of the products can be sued. If you manufacture or supply materials used in construction, you need product liability insurance.

What are the Standard Exclusions?  

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/claims-occurrence exclusions  

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.

Contractor exclusions  

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 insurance policies might specifically exclude pollution damage coverages. Therefore, a special pollution liability insurance might be necessary for such a situation.

How Much Does a Construction Coverage Cost?  

That’s a good question! While it isn’t possible to give out a one-size-fits-all number, we can make assumptions based on different variables like:

  • Number of employees
  • Type and number of company vehicles
  • Value of your listed property
  • Registered Sate
  • Claims history

A generally accepted estimate is that construction insurance will cost anywhere from 1-10% of the construction project’s total cost.

Want quotes from the best insurance carriers in town? We’re here to help!

Has this article been helpful to you? Leave a comment below and share your thoughts with us.

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