9 Types of Insurance Your Construction Business Needs

Construction projects always have hiccups.

Whether it’s a subcontractor who can’t seem to get the job completed correctly or people stealing materials from the job site, no project ever goes according to plan.

These hiccups can add extra costs to you. Insurance in some cases (like workers comp) is mandatory.

Other times making sure your bottom line is covered by insurance policies can provide a way to insulate your business from problems you can’t control.

The following 10 types of insurance for a construction business offer a way to protect your assets.

1) General Liability

General liability covers damages to the property and injuries on the property. Most accidents will fall under this type of insurance.

Everything from a visitor injuring themselves on the job site (for employees, that falls under workers compensation) to accidentally knocking over someone else’s retaining wall.

builder working

It isn’t just for accidents. General liability can also protect you from people unaffiliated with you claiming personal harm or property damage.

If someone makes a claim against you, your company, or one of your employees, general liability will cover it.

Even if the claims brought against you are bogus, small and mid-sized businesses can have trouble covering all the associated costs of lawyers and court fees. General liability protects you from that, so you don’t lose your business.

In short, general liability insurance helps prevent unplanned, potentially ruinous expenses. Accidents happen. Every once in a while, you run into someone who would rather live off of lawsuits than do honest work.

Why You Need It

Most states require some level of general liability insurance. If you are not required to have general liability, it can still be wise to protect yourself from accidents and costly mistakes.

As a catch-all, one of the most important insurance you can buy is a general liability policy. Protect yourself from:

  • Bodily injury claims
  • Property damage claims
  • Completed product claims
  • Personal and advertising injury claims
  • Immediate medical expense claims

2) Commercial Auto Insurance

Like you have car insurance for your personal vehicle, commercial auto insurance covers your work vehicles. Virtually everything that moves on a road can qualify for commercial auto insurance.

It also covers any of your employees operating company vehicles.

Just like personal vehicle insurance, there are types of commercial auto insurance. Consider what amounts would best protect your business in each of the following categories:

  • Liability Auto Coverage
  • Physical Damage Coverage
  • Medical Expense Coverage
  • Uninsured Motorist Coverage

Liability auto covers the cost of damage and third-party medical expenses. For example, damage to the other vehicle or non-driver passengers in either vehicle fall under liability coverage.

Physical damage covers things that happen to your vehicle. For example, if somebody breaks a window to steal something out of your truck, that would fall under physical damage.

long haul truck

It also covers vandalism, fire, storm damage, other natural disasters, or if another vehicle hits yours. An employee hitting an object like a telephone pole would also fall under physical damage.

Medical expense coverage doesn’t come with every commercial auto insurance policy.

Most of the time you will have to specifically request the addition. As the name implies, it covers medical expenses if the person driving your vehicle is at fault.

Uninsured motorist is another optional provision under commercial auto insurance. While covering the normal costs of an uninsured motorist being at fault for damaging your property, it does another important thing.

If one of your employees is using their personal vehicle for work, and they don’t have car insurance (or enough car insurance) the injured party could bring a lawsuit against your company. Uninsured motorist coverage prevents that too by covering damages.

One important thing to keep in mind is that commercial auto insurance doesn't cover your commute between your home and work. It would cover you if you are driving a company vehicle.

Why You Need It

Keeping your work vehicles separate from your personal auto policy reduces your personal liability if there is an issue.

When you mix business and personal in things like insurance, questionable lawyers can make a case to go after your personal assets. It doesn’t always work, but the lawsuit still costs you time and money.

Vehicle wrecks are common. The more you drive, the more likely one is to happen.

In construction, you probably drive more than most people. Protecting your business with this type of insurance is one of the most surefire ways to avoid unnecessary costs.

3) Workers Compensation

Workers compensation (aka workers comp, workman’s comp, or workers liability) covers any injury to your employees on the job site. This not only covers medical bills, but it also provides for lost wages if the person needs time to recover.

yellow accident

The other benefit to workers comp is that it can cover legal fees if an injured employee decides to file a lawsuit against your company.

Although make sure to check the policy you buy. Every once in a while, you have to add an employers’ liability part to cover legal fees.

Why You Need It

Laws vary by state, but most states require workers comp when you have five or more employees.

However, even in situations where you aren’t legally required to have workers comp, you are still liable for on the job injuries. That can quickly add up to tens of thousands of dollars for even one serious injury.

Plus, if you choose not to carry workers comp, your injured employee may choose to sue your company. Lawsuits are a pain.

Even if the judge finds you innocent of any wrongdoing, you still have to pay your lawyer. You can’t get that time in court and time worrying about it back either.

4) Builders Risk

Builder’s Risk covers on-site damage while the property is under construction.

Thieves break into construction sites to steal tools and metals. Bored kids see job sites as exciting new playgrounds. Nature has its own set of uncombable hazards.

vandal strike

Some builders risk policies will also cover materials before they are delivered too. That way anything that happens in transit also gets held by this safety net. However, not all policies do this so make sure to read the details carefully.

Another surprise to watch out for is where you are building. Most builders risk policies cover the following causes of property loss:

  • Fire
  • Theft
  • Vandalism
  • Lightning
  • Hail
  • Hurricanes
  • Explosions

Some locations come with coverage for earthquakes, flooding, and wind damage. In areas prone to these hazards, coverage for those may cost extra.

There are also extra add-ons you can buy to cover site cleanup (i.e., storm debris or leaked chemicals) and temporary constructions that you use, like forms, scaffolding, and temporary buildings.

Why You Need It

Between people and weather, there are countless things that can happen on the job site. There is no sense in increasing costs for having to replace materials and make repairs.

If you consider anything on this list that isn’t mandated by the state, builders risk is a smart choice. Your company has a financial interest in seeing the project to completion.

If your work gets wiped out through no fault of your own, you are still on the hook for finishing it.

5) Professional Liability (E&O Insurance)

Professional Liability insurance is another name for Errors and Omissions Insurance.

It covers you in any situation where a client tries to argue that you gave them a bad suggestion. This both helps when you genuinely made a mistake and when you happen across one of those lawsuit happy clients.

unhappy customer

It’s like malpractice for doctors. If your company did something wrong through a simple mistake or negligence, a client might file suit.

The lines can get a little fuzzy between professional liability and general liability. General liability covers damage, personal and physical. Professional liability tends to be associated with non-tangible things.

For example, did you deliver the promised work? With building, that’s easy.

If the building is finished, the answer is yes.

If you are rendering advice or a service, the client may come back and decide that you didn’t follow through on the contract after all. That would be covered under professional liability.

Circumstances like not delivering what was in the contract, negligence, incomplete work, and errors all fall under professional liability.

Why You Need It

Not every type of construction business needs professional liability insurance.

If you only build or install something, your general liability insurance should protect you. If you provide any advice or design work, errors and omissions can save you a load of trouble.

For example, if your firm offers both architectural services and does the general contracting, professional liability will cover any problems arising from the architectural side of your business.

6) Pollution Insurance

Contractors pollution liability (CPL) insurance covers losses resulting from pollution conditions.

These losses can be damage to the property, personal injury, cleanup, or defense costs. You also see people refer to CPL as environmental liability insurance.

water polution

Policies typically cover anywhere from two to 13 years. Even when your project is complete, it can take time for environmental effects to show up.

You can also get CPL as a policy per project or a blanket policy. Blanket policies cover all the work you perform during the policy term.

Even if you don’t work with hazardous chemicals, CPL is a wise consideration. Most lawsuits resulting from pollutants aren’t the highly publicized oil spills or drinking water contaminants you see on the news.

They’re things like water leaks creating mold hazards. Other common issues are accidentally drilling into old insulation containing asbestos, and subsequently releasing it into the building.

Most pollution problems come from missteps or oversights that don’t get discovered until well after the project is completed.

Why You Need It

Most general liability policies contain a pollutant exclusion.

Since a pollutant can be virtually any irritant or contaminant, that leaves open an enormous area of risk for almost every type of construction. Even if you don’t work with hazardous chemicals.

Environmental cleanup gets extremely expensive fast. CPL is available to any type of contractor whether they expect environmental damage or not.

CPL covers more than just the cleanup. It covers the legal fees, medical expenses, and investigations into the cause.

7) Inland Marine for Property/Equipment

Inland Marine insurance covers tools and equipment at the site, and also as they get moved from site to site. This includes everything from bulldozers to power cleaners, scaffolding to screwdrivers.

Even when you have them locked up, tools can still go missing. Property and equipment not only protects your tools but any heavy machinery you have on site too.

shovel excavator

This type of coverage follows the equipment, no matter where it currently is. Permanent storage, temporary storage, transit, and the job site are all covered.

More recently policies are starting to cover digital assets and computer equipment too. In short, anything that is at risk during transportation can be covered by inland marine insurance.

One thing to watch out for with these policies is whether or not they cover employee theft. Some policies do, but not all of them.

Why You Need It

Specialized equipment can be difficult to come by.

If something happens to something you need for a job, that can throw off the entire schedule. Replacing or repairing the equipment can eat into your bottom line on top of the delay.

Stolen, damaged, or lost items can quickly eat away at your profits. Insuring these items can ensure you have the cash available for more important expenses.

Even when you have them locked up, tools can still go missing. Property and equipment not only protects your tools but any heavy machinery you have on site too

You can choose from two different options for contractor’s equipment insurance, actual cash value or replacement value. Current value policies cover your equipment at its current worth. If you make a claim, it will pay that amount. That amount may not be enough to immediately replace the tool.

Replacement value policies are more expensive. They pay claims at what the tool would be worth brand new. The benefit of this type of policy is that you can immediately replace the tool without needing to make up the difference between the tool’s current value and what it costs to buy new.

Why You Need It

You can’t get anything done without your tools. Replacing them is expensive, if not time-consuming.

Property/equipment insurance means you can get back to work quickly. Plus, you don’t need to cut into your profits to pay for something that you shouldn’t have needed to replace at all.

Good tools are expensive. While high-end equipment can last for years or even decades, the attention to quality doesn’t help you if the tools keep wandering off.

8) Loss of Income

Loss of Income protects you when projects go south. You also see this referred to as business interruption.

With loss of income insurance, you can still pay your bills and meet payroll if your business cannot operate. Most policies will pay for 12 months of total or partial interruption.

Make sure you are clear on exactly what counts as a partial interruption. It’s usually tied to a percentage of lost revenue.

There are few things to watch for in a loss of income policy.

firefighter building

First, fire, wind, hail, vandalism or other human-caused damage is covered. Floods, earthquakes, and broken glass are not.

Make sure to read any potential policy carefully before signing so you don’t end up with an extra unwanted surprise down the line

Why You Need It

Most businesses struggle to recover from business interruptions. Many go under entirely. It all depends on how big your business is and how much you have squirreled away in a rainy-day fund.

Particularly in areas with high fire and storm risks, loss of income can be a lifesaver.

9) Umbrella Insurance

Umbrella insurance is an extension of liability that will extend over the General Liability and auto liability.

If you have 1,000,000 per occurrence and 1,000,000 single limit auto liability with a $2 million umbrella that extends your coverage to 3 million to both.

risk umbrella

No one would ever take out 2 general liability policies.

Why You Need It

Extremely large projects can run up against issue limits.

An issue limit is how much an insurance company can cover before you become too big of a risk in their portfolio. No single company wants to be on the hook for ruinous amounts.

An umbrella policy helps get the coverage your work needs, even if one company cannot handle all your business.

Conclusion

Some states will require you to buy certain types of insurance. Some projects will require you to carry certain types of insurance. 

Workers compensation and general liability fall into these categories. The others are up to you.

Nobody gets excited about paying for insurance. But it can be a small price to pay to protect your business.

How much risk are you willing to take on?

Kernan Insurance Agency

9932 Brewster Lane

Powell, OH 43065

 
Main office: 614-764-0121
Toll free: 800-718-2663
Fax: 614-764-0310
 

Office Hours:

Monday - Friday: 7:00 AM - 5:00 PM

Weekends: By Appointment

 

Commercial Surety

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