Paul Sanchez
When hiring a builder, it is important to ensure they have the right insurance in place. This will protect you in case something goes wrong, such as damage to your property or a neighbour's, or injury to the builder or their employees. There are several types of insurance that builders should have, including general liability insurance, which covers property damage and bodily injury to third parties, and builders' risk insurance, which covers buildings and structures during construction or renovation, as well as construction materials and equipment. Employers' liability insurance is also important, as it covers the builder and their employees in case of work-related injuries or illnesses. Other types of insurance to consider are professional liability insurance, which protects against lawsuits arising from the quality of work, and inland marine insurance, which covers property that is in transit or away from the business residence, such as tools and specialised equipment.
| Characteristics | Values |
|---|---|
| Employers' liability insurance | Covers builders if an employee is killed or injured as a result of their work |
| Contract works insurance | Covers works in progress if they need to be repaired or redone due to damage |
| Insurance-backed building guarantee | Provides cover if the building company goes bust |
| Warranty | Covers faults in the work |
| Builders risk insurance | Covers damage to buildings and structures under construction or renovation, as well as construction materials and equipment |
| General liability insurance | Protects your business from liability claims for property damage and bodily injury to third parties |
| Professional liability insurance | Protects against lawsuits over the quality of work or actions of subcontractors |
| Inland marine insurance | Covers property likely to be moved or in transit, including tools and specialized equipment |
| Contractors pollution liability insurance | Protects your business if a pollution incident happens at a third-party job site |
| Workers' compensation insurance | Covers employees' work-related injuries or illnesses and helps protect against employee lawsuits |
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What You'll Learn
Builders risk insurance
The policyholder will likely need to work with an insurance agent to compare quotes and get coverage. A construction agreement should specify whether the contractor, property owner, or someone else buys the policy. The cost of a builder's risk insurance policy usually depends on the project's cost, location, and construction type. The project cost includes the total value of the completed building, materials costs, and labour costs. The location of the project is the biggest component when determining the cost, with coastal and wind-prone areas being a factor. The building materials will also factor into the cost, with higher-quality construction resulting in a more durable structure and less exposure to risk.
A builder's risk insurance policy usually starts on the date when all the contracts are signed, but certain provisions may restrict when the coverage begins. It is a temporary insurance policy that will likely end after the project's completion. It is important to understand the specific conditions of when coverage begins and ends.
Builder's risk insurance does not typically provide coverage for workplace accidents, bodily injury, or liability coverage. However, it can help cover additional soft costs, or expenses not directly related to construction, if property damage causes a delay. It is important to note that builder's risk insurance may have coverage exclusions, such as earthquake, flood, wind, or beach zones.
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General liability insurance
In some states, contractor general liability insurance is required for licensure. Most project owners will not work with an uninsured contractor and will require proof of general liability insurance before allowing them on their job site. There are two types of general liability insurance: claims-made and occurrence. Claims-made policies only cover claims on active policies, while occurrence policies cover claims made during the policy term, even if they are filed after the policy ends or is cancelled.
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Professional liability insurance
CPL insurance can protect both contractors and third-party hires, such as architects, engineers, and designers, in the event of mistakes made during a building project. It is designed to fill a crucial exclusion from a contractor's general liability insurance policy, which typically does not cover financial losses from professional services. With CPL insurance, contractors can have peace of mind, knowing they are protected from potential lawsuits and financial risks, even when projects involve multiple professionals.
The benefits of CPL insurance extend beyond financial protection. It demonstrates a contractor's commitment to risk management and maintaining client confidence. Industry attorneys have observed that when a client or third party is aware of a robust CPL policy, they are less likely to pursue baseless or vindictive claims. This proactive approach to risk management can deter unnecessary legal action and help contractors secure more business.
When considering CPL insurance, it is essential to evaluate your construction budget. The coverage limits should take into account the total value of the completed building, material costs, and labour costs, and potential soft costs associated with construction delays. By carefully assessing these factors, builders and contractors can ensure they have adequate protection while also managing their insurance expenses effectively.
In conclusion, professional liability insurance is a crucial safeguard for builders and contractors, offering financial protection, legal defence, and peace of mind. By understanding the risks inherent in their projects and choosing appropriate coverage, builders can maintain their financial stability, protect their reputation, and foster client confidence.
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Workers' compensation insurance
For the business, workers' compensation insurance helps shield against potential financial disruptions and liabilities. It can help cover the costs of medical expenses and lost wages for injured employees, reducing the financial burden on the company. This insurance also includes employer's liability insurance, which protects the business if an employee decides to sue over an injury.
The cost of workers' compensation insurance is determined by various factors, including payroll, the type of jobs performed, previous insurance claims, and the business's risk assessment. The rate paid for coverage depends on the nature of the work and the company's record of injuries and claims.
By having workers' compensation insurance, builders can gain peace of mind, knowing that their employees are protected and that their business is safeguarded from financial instability due to work-related injuries or illnesses.
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Inland marine insurance
The cost of inland marine insurance can vary depending on the provider and the specific needs of the business. Some insurers, such as The Hartford, offer customizable policy limits, while others like Travelers provide a comprehensive range of coverage options, including builders risk, equipment, and installation floaters.
In summary, inland marine insurance is a vital form of coverage for builders and other professionals in the construction industry who need to protect their tools, equipment, and materials while they are in transit or stored at a job site. It provides peace of mind and financial protection in the event of theft, damage, or other unforeseen circumstances that may occur during transportation or storage.
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Frequently asked questions
Builders risk insurance provides coverage for buildings and structures during the course of construction or renovation. It also covers building materials, equipment, and other property-based assets.
General liability insurance protects small business owners against claims of property damage, bodily injury, or advertising injury on someone else's property. Most states require this insurance to be in business.
Professional liability insurance, also known as E&O (errors and omissions) coverage, protects you from lawsuits over the quality of your work or something one of your subcontractors did on your site.
Subcontractor default insurance reimburses construction managers or general contractors for costs related to a subcontractor's performance if they fail to perform the work they agreed to or their work fails to meet the project's standards.
Employers' liability insurance covers your builder if an employee is killed or injured as a result of their work. If your builder has any other person working for them who is not a direct family member, they are legally required to have this insurance.
