Your Construction Site Was Robbed, Now What?
General contractors, specialized contractors, homebuilders, remodelers, and even carpenters need to minimize exposure to risk with construction insurance customized to the hazards of the profession. The right blend of coverage can help you limit your financial risks due to jobsite injuries, equipment damage or vehicle accidents may occur during the course of your construction project.
4 Types of Risk Construction Companies Face
- Property damage: Damages to company property or equipment
- Income loss: Loss of income due to business interruption from events such as fire or severe storm damage
- Employee injuries: Job-related injuries, illnesses or deaths
- Liability risks: Injuries or property damage caused to others not associated with your company
What Is Construction Insurance?
Your construction insurance can make the difference between your company turning a profit or losing money on a construction project. It's important to make sure you have adequate and quality coverage. The specific coverage you choose will depend upon a number of factors, including the size of your company, the number of workers you employ, and the type of work you perform.
Some of the policies you may want to consider include:
- General liability insurance: This critical form of coverage cover your financial risk if you are responsible for bodily injury or property damage to others. If you work in construction, general liability insurance is required in order to get a contractor's license in most states.
- Builders risk insurance: You can think of this as construction liability insurance. It provides coverage specifically for on-site property damage of a site under construction. This coverage varies by company, but may also cover the construction materials on site, prior to installation. The coverage limit is based on the value of the structure when completed.
- Professional liability insurance: If you provide consultation, design work or advice as a part of your professional services, this form of liability coverage can protect you. Also known as "errors and omissions" insurance, this coverage is designed to cover potential claims due to a loss that a client may experience from your services.
- Loss of income insurance: Covers loss of income that results from insured a business interruption, up to 12 months
- Workers compensation: This coverage is required in most states to cover employees' risk of job-related injury, illness or death.
- Pays for medical diagnosis and medical treatment
- Covers about 60% of lost pay if employee cannot return to work
- Commercial vehicle insurance: If you use cars, trucks, vans or any other vehicles for business purposes, commercial vehicle coverage will provide protection for any bodily injuries or property damage to third parties that you cause.
Is a Business Owners Policy Right for You?
A business owners policy, or BOP, is appropriate for some small business owners. If you have a small construction business, this kind of combined policy may be right for you, and may provide much of the construction insurance you need at an affordable rate.
Your business may qualify for a BOP if you generate less than $5 million in sales and have fewer than 100 employees. Your policy will typically combine the following coverage types:
- General liability: Normally covers up to $1 million of injury to others or damage to their property.
- Medical payments: Covers injury to others on your business property.
- Property damage: Covers your business property, such as equipment, for loss or damage.
- Business income: Covers loss of income for up to 12 months due to business interruption.
- Equipment breakdown: Covers mechanical breakdown and other causes of equipment malfunction.
- Rental vehicle coverage: Covers loss or damage to vehicles you borrow or rent.
State Licensing and Liability Coverage
For business and marketing reasons, most contractors get licensed even if it is not a requirement in their state. You will likely be viewed more favorably by the insurance companies and be able to secure better rates and pricing if you are licensed.
Beyond the construction training requirements, you will have to carry general liability insurance and workers compensation insurance. Some states will also require you to be bonded. This bond can be provided by some insurance companies.
How Much Does Construction Insurance Cost?
The cost of your construction insurance will differ based on how many employees you have, what kind of construction work you do, and how much work you generate. Companies that develop raw land and construct higher value projects will pay the most.
Normally, you will pay a percentage of sales as your premium with a percentage upfront, and then make monthly payments after that.
Who Can Benefit From Construction Insurance?
Here are some of the businesses that participate in the construction trade that can benefit from construction insurance.
- General contractors: Oversee the whole construction project
- Heavy contractors: Construct streets, roads and infrastructure
- Home improvement companies: One-person remolders to larger renovation companies
- Specialized Contractors: Masons, carpenters, framers, plumbers, electricians
Managing Risks with Construction Insurance
As a contractor, you take on risk of property damage, employee injury and vehicle accidents. You are exposed to the risk of bodily injury or property damage to third parties. With the right business insurance in place, you can minimize the risk and liabilities that can steal your profits.
It's a good idea to comparison shop before you buy. Make sure you're working with a highly rated insurance company (you can check this with rating agencies like A.M. Best). It's also a good idea to collect at least 3 rate quotes on similar coverage before you buy. This way, you can see your options and choose a business insurance policy that's competitively priced, but has all the aspects you need to be protected on the job.
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