Construction Insurance: Business Insurance for Contractors

Fran Majidi
May 13, 2020

The word contractor has many meanings when it comes to insurance. Whether you work in construction as a contractor or are an independent contractor or general contractor in any industry, you will need business insurance. We try to clarify which products are most suited to the type of work you do. And while we do not recommend cheap business insurance for contractors, which may not come through when you need it most, we do know how to find you the best business insurance for contractors at the most affordable prices.

Construction insurance can make or break your business, and the coverage you buy will be based on factors, like the size of your company and the number of workers you employ. Your rate will largely be based on the type of work you do and the risks involved. For instance, if you don’t have the right insurance in place, you may end up losing money on a construction project. See more below on what kinds of coverages are best suited to your profession.

Contractors Who Work in Construction

General Contractor Business Insurance

You’re a general contractor if there’s a three-party relationship and you hire others. In most states general contractors are required to have contractor’s liability insurance and workers’ compensation insurance for those you employ as subcontractors. General liability insurance policies vary in price, but the average premium for contractor business insurance is less than $100 a month and less than $1200 a year. General liability insurance protects general contractors against third-party injuries, property damage and advertising injuries. Without general liability insurance, you can’t get a contractor’s license in most states.

Builders Risk Insurance

This is what you’d get to insure a construction site. This type of policy provides coverage for on-site property damage of a project under construction. Typically, a policy covers construction materials. The coverage limit is based on the value of the project once it is completed.

Professional Liability Insurance

The best business insurance for contractors includes professional liability coverage because if you provided any advice or consultation, you need to be protected in case there was an error in your judgement. This type of coverage is also known as errors and omissions insurance, and it can protect you against claims a client may file against you if you were wrong in your assessment of the situation.

Business Interruption Insurance

The construction industry relies on other parties for materials, goods and labor. You may need business interruption insurance in case of bans, embargoes, quarantines, like the ones we’ve seen lately, and other government actions that affect your supply chain.

Without business interruption insurance for contractors, your losses will not be covered if you’re left without the materials you need for a construction job. A business interruption policy may cover rent, relocation costs, wages and taxes until your business is operational again. Keep in mind that communicable diseases (yes, like coronavirus) are often not covered in business interruption policies so make sure to read up on what’s explicitly excluded.

Contingent Business Interruption Insurance

This type of coverage helps with losses associated with key supplier(s), business partner(s) or client(s) due to a covered incident. It covers you while searching for replacement suppliers, partners and clients.

What Is a Contractor Bond?

Also called a construction bond or surety bond, this contract guarantees that a job will be done right. This bond protects the client who hired you from financial loss if you are unable to complete the task or fulfill the requirements of the contract.

How Much Is a Contractor Bond?

Your credit will determine your rate for a contractor bond, so you won’t pay much if you have good credit. On average, the cost is about $100-$125 for a $12,500 to $15,000 surety bond for a person with a better-than-average credit rating.

Commercial Auto Insurance

If you are a construction contractor or construction business owner, you likely use trucks, vans or other vehicles for the work you do. Your personal auto insurance will not cover you if you’re in an accident carrying materials for a job. Commercial auto coverage will protect against third-party bodily injuries and/or property damage you may do while on the job. It’s important to have sufficient coverage and to have the proper insurance on all job-related vehicles.

Business insurance for Independent Contractors

Independent contractors need general liability insurance. Like any business owner, an independent contractor may be sued or held liable for damages. Business insurance for contractors mitigates legal obligations and exposure to liabilities. General liability insurance is the most important form of protection a contractor can have to help pay for legal fees and damages resulting from a lawsuit.

Am I Legally an Independent Contractor?

By definition an independent contractor is someone contracted to do a certain task or tasks. You don’t have to work in construction to be an independent contractor. Uber drivers and gig-economy employees are independent contractors. They also need special insurance, but not all independent contractors need liability insurance. Some require more liability insurance than others, like yoga teachers, insurance agents, real estate agents and more. An independent contractor is usually not considered an employee of the principal business even though they work for a fee.

What’s a General Contractor?

If you are a general contractor, you may be hired to perform certain jobs and you subcontract some of the tasks to other entities. Basically, there is a three-party relationship when you are a general contractor because you hire others. You will need some small business insurance as a contractor, even if you only buy general liability insurance.

What Are Advertising Injuries and Why Would I Need Coverage for it?

If in the course of advertising your products and services you caused injury to another party, that is considered an advertising injury. Most often advertising injury claims are filed by a competitor, who may sue you for slander, if you claim their product or service is faulty or even harmful. You can also be sued for violation of privacy (let’s say you photographed a home you did work on, without permission of the owner of the home) or for a stolen advertising concept or infringing on a slogan. Your general liability coverage will protect you from losses and legal bills. Consider adding an commercial umbrella insurance policy if you worry that the limits on your liability policy are not high enough.

If you’re confused about what kind of insurance you need, enter your zip code below, fill out a brief form, and a Business and Contractors Insurance Services concierge will contact you with everything you need to know, including transparent pricing.

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