Alyssa Lane
General contractors face a variety of risks in their line of work, from accidents and injuries to property damage and theft. To protect themselves from unforeseen circumstances and potential financial ruin, they need to have the right insurance coverage. The type of insurance a general contractor requires depends on the nature of their work, the value of their equipment, and the number of employees they have. This article will explore the different types of insurance coverage that general contractors should consider to effectively manage their risks.
| Characteristics | Values |
|---|---|
| Commercial general liability insurance | Covers claims made by third parties for physical injury or property damage that occurred during contracting work. |
| Workers' compensation insurance | Covers medical expenses, lost wages, and death benefits for employees injured on the job. |
| Builders risk insurance | Protects builders and contractors from losses due to materials and equipment being lost, stolen, or damaged. |
| Property damage insurance | Safeguards business property, including tools, equipment, and supplies, from theft, fire, and water damage. |
| Umbrella liability insurance | Provides additional coverage beyond primary insurance limits in the event of catastrophic events or claims not typically covered. |
| Cargo insurance | Covers property, including third-party property, that is in transit and fills gaps in CGL policies. |
| Bailee insurance | A type of inland marine policy that covers third-party property in storage, repair, or service. |
| Auto liability insurance | Covers claims involving vehicles, even if not listed as an additional insured on the policy. |
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What You'll Learn
Commercial general liability insurance
General liability insurance also covers claims for personal and advertising injury, medical payments, and product and completed operations. Medical payments cover bodily injury caused by an accident during the policy period, including death. Product and completed operations coverage provides protection for bodily injury and property damage after a project is completed, but only for work performed during the policy period.
The cost of a general liability insurance policy for contractors typically ranges from $850 to $3,200 per year. The cost is based on factors such as the contractor's classification, payroll, subcontractor costs, gross receipts, and location. Policies usually have coverage limits of $1 million per occurrence and $2 million in aggregate. If additional coverage is required, contractors can purchase an Excess policy, which covers damages above the base general liability policy's maximum limits.
General liability insurance is often required by clients and local governments before a contractor can start work on a project. It is also necessary for contractors to meet insurance requirements surrounding liability claims and protect themselves from unforeseen circumstances. Therefore, it is strongly recommended that contractors maintain this coverage for their own protection.
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Workers' compensation insurance
In most states, workers' compensation insurance is required for construction businesses with employees, and often for contractors as well. The specific requirements vary from state to state, with some states mandating coverage for all employees, including full-time, part-time, and seasonal workers, while others require it only when a certain number of employees is met. For example, in Pennsylvania, all construction businesses must carry workers' compensation insurance for their employees, whereas in Georgia, it is mandatory only when there are three or more employees.
The construction industry is inherently risky, with a high potential for accidents and injuries. Workers' compensation insurance helps protect both the contractor and their employees in the event of a work-related incident. For employees, it covers medical expenses, providing immediate and ongoing medical care, including emergency room treatment, physical rehabilitation, and disability benefits. It also reimburses employees for lost wages due to temporary or permanent disabilities arising from work-related injuries or illnesses. Additionally, it provides fatality benefits for families of workers who succumb to work-related injuries, offering financial support during a difficult time.
For contractors, workers' compensation insurance offers liability protection. It includes employer's liability insurance, which shields contractors from lawsuits filed by employees injured on the job. This aspect of the policy helps protect the contractor's business and assets in the event of legal action.
The cost of workers' compensation insurance is regulated by the state and is typically calculated based on the business's payroll. While rates may vary, it is essential for contractors to understand their state's requirements and the factors influencing their premium to ensure they are adequately protected in the event of work-related injuries or illnesses.
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Builders risk insurance
- Materials, fixtures, and equipment to be permanently installed during construction or renovation.
- Documents and data, such as blueprints, specifications, and other important documents.
- Temporary structures like scaffolding or signs.
- Soft costs, including architect fees, penalties owed to local governments, and additional real estate taxes.
- Cleanup costs after damage, such as debris removal and pollutant cleanup.
It is important to note that builders risk insurance policies generally do not cover damage to trees, shrubs, roads, walkways, or the construction company's tools and equipment. They also often exclude causes of loss, such as employee theft, work vehicles, damage from natural disasters, and manufacturing defects.
The cost of builders risk insurance depends on various factors, including the project cost, the size of the construction site, the expertise and experience of the contractors and subcontractors, the amount of coverage, and the quality of materials used. To determine the right level of coverage and the associated costs, it is recommended to work closely with an experienced agent, broker, or insurer who understands the unique risks of construction projects.
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Umbrella liability insurance
As a general contractor, you may want to consider umbrella liability insurance to protect your business and personal assets. Umbrella liability insurance is a supplemental insurance plan that provides additional coverage beyond the limits of your primary insurance policies. It is designed to kick in when your existing coverage is exhausted, offering an extra layer of protection against large or multiple claims.
The cost of umbrella liability insurance is relatively affordable, with the first $1,000,000 layer of coverage typically costing around 20% of the premiums for the underlying business auto and general liability insurance. On average, the annual cost of an umbrella policy ranges from $750 to $1,500, making it a cost-effective way to increase your liability protection. This additional coverage can be especially important for contractors working on large projects or handling valuable assets, as it allows you to take on more significant ventures without worrying about exceeding your insurance limits.
It's important to note that umbrella liability insurance is not sold as a standalone policy. To qualify for an umbrella policy, you must first purchase other insurance policies, such as general liability, auto, or employers' liability insurance. Umbrella coverage is designed to supplement these primary policies and provide you with enhanced protection against unforeseen events.
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Cargo insurance
There are several types of cargo insurance available, including:
All-Risks Coverage
This type of cargo insurance covers all risks of loss or damage to the cargo, except those specifically excluded in the policy. It is the most comprehensive type of cargo insurance.
Named Perils Coverage
This type of insurance covers specific risks that may cause loss or damage to specific cargo identified in the policy. These risks may include fire, theft, collision, or natural disasters. Named perils coverage is generally less expensive but provides less protection.
Open Cover
Open cover is a type of cargo insurance that provides continuous coverage for a specified period, rather than a one-time shipment. This type of insurance is typically used by businesses that regularly ship goods and want ongoing protection.
Motor Truck Cargo Insurance
Motor truck cargo insurance, also called cargo insurance, protects goods and materials transported by for-hire truckers. It covers the trucker's liability in case cargo is lost, damaged, or destroyed due to various risks during transit. This type of insurance includes key elements such as removal expenses, coverage for costs related to preventing further loss, and protection for customers from charges associated with undelivered loads.
When considering cargo insurance, it is important to assess the value and nature of the goods being shipped, the mode of transportation, and the destination. Additionally, general contractors should be aware of the different insurance options available, such as standalone cargo insurance policies or including cargo insurance as part of a broader insurance program.
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Frequently asked questions
General liability insurance is a basic insurance policy that provides coverage for bodily injury and property damage caused by the contractor or their employees. It also covers legal expenses incurred during litigation. This type of insurance is important for contractors because it protects them from financial losses in the event of an accident and shields them from costly lawsuits.
Workers' compensation insurance covers employees' medical costs, lost wages, and disability income in the event of work-related injuries or sickness. It also provides benefits to the families of deceased staff. This insurance is necessary to protect employers from lawsuits and to comply with state requirements.
Builders risk insurance protects builders, contractors, subcontractors, and equipment owners from losses due to materials and equipment being lost, stolen, or damaged during a construction project.
Umbrella liability insurance provides additional coverage beyond the limits of primary insurance policies in the event of catastrophic events or claims not typically covered. Contractors in high-risk industries should strongly consider this type of insurance to protect against large financial losses and legal fees.
