Top Contractor Insurance Choices and Coverage
Do you need information on contractor insurance options? Here are the best insurance choices for any size contractor business.
Contractor insurance coverages are as varied as the types of companies and contractors purchasing them. Every contractor need is different in some way. Liability, workers compensation, surety bonds (bonding) are just a few of many available options, therefore it is vital to understand the differences when making coverage decisions. Read ahead to learn more about the top contractor insurance choices and coverage options available for you today.
What Is Contractors Insurance? - Overview and Types
Construction contractors need some type of insurance coverage before commencing on-site work activities. Overall, coverages protect against accidents, injuries, fatalities, loss of income and delays. Many different types of contractor insurance policies are available, each one with unique coverage features and options. Purchasing contractors insurance is not always optional, however. An outside company hiring your business will require you to purchase it before allowing you to begin any work. Contractors insurance is also commonly required by construction and licensing boards.
The multiple types of contractors insurance vary almost as much as the businesses they cover. Still, it is possible to categorize coverages into several primary tiers for explanation purposes, then expand as applicable based on your needs. Please note:
- The following categories are summaries and do not include every single type of contractors coverage available.
- Coverage for larger-scale projects might also be beneficial for smaller projects as well.
- Specialized or customized coverages are not listed in these categories.
Certain types of coverages are essential for contractors to have. Some are essential for projects of all sizes, while others suffice in place of bonding and more comprehensive policies. General liability is the most common and important of all essential contractor insurance policies.
- General liability insurance covers claim pursuant to damages suffered by third parties while on-site. Essentially, general liability protects against certain risks applicable to contractor operations while in-process.
- Completed operations insurance (also referred to as products liability insurance) continues liability coverage once the project is completed. This type of insurance is sometimes included in general liability policies but not always. It is occasionally necessary to purchase as an add-on or separate policy. Median total payout costs for liability lawsuits averages approximately $1.5 million, which makes completed operations insurance a necessary coverage essential.
- Equipment coverage helps protect tools, machines, and equipment you own against losses due to theft and natural disasters. This coverage is either included in your contractor's business owner policy (BOP) or purchased as a standalone policy.
- Workers compensation insurance is necessary to cover expenses pursuant to injuries your workers sustain while on-site and on the clock. This type of coverage is often the most expensive to procure, although lower premiums are available for contractors having a lower experience modifier (contractor safety score).
- Property insurance is essential if you own real estate such as storage facilities or warehouses where heavy equipment or other applicable items are stored.
- Commercial auto insurance is essential if you own and operate vehicles used for construction purposes.
Coverages in this category are suggested because they are also often mandated for numerous specific project types. The minimum liability is enough to get a project started and offer certain protections after completion. Most common liability coverage limitations are capped at one million dollars, however, which is not enough to cover some contractor’s extended assets. The following are suggested coverages to extend your protection:
- Umbrella liability between two and five million dollars.
- Hired and non-owned insurance (covers rented and non-owned vehicles used during operations; does not cover owners).
- Leased equipment insurance.
- Employment practices (covers employer misconduct such as hiring and firing discrimination, sexual harassment, and wrongful termination).
Coverages for Large-Scale Projects
Pollution-and-environmental coverage is an add-on to general liability insurance. It helps cover losses and damages due to contamination caused by your contracting operations or waste material transport system. Contractor’s errors and omissions (E&O) insurance is vital to contractors when construction-based consulting services or hired subcontractors are common. E&O coverage protects against mistakes made by one of your subcontractors or based on your consulting advice.
Why You Need It - Benefits
Construction contractors need insurance coverage to protect against financially depleting lawsuits. Contractors insurance is also needed to attract bids and commence on-site operations. Certain types of coverages are required by clients, licensing agencies and cities or municipalities as well. Specified amounts of coverage limits are also required, which vary based on each job. This varied nature is common for contractors insurance across-the-board. Each job has a different budget, equipment needs and timeline. Therefore, contractors insurance is customized to fit the parameters of each construction project covered.
Coverages and Costs
Some coverage types were already discussed above but others also exist. For example, coverages exist for specific trades. General contractors, painters, roofers, plumbers, carpenters, electricians, HVAC services and remodelers all have contractors insurance customized for their trades. Additional insured endorsements add additional people to your policy to limit additional party liability exposure. Surety bonds (bondings) and contractors all risks (CAR) insurance are also used for contractor insurance coverage purposes.
Basic general liability insurance premiums might average out to approximately $800 per year but prices vary greatly both above and below that figure for a variety of reasons. For example, prices for contractor surety bonds vary based on coverage amounts, the state in which the bond is issued and additional variations per state regulations. Your credit rating also impacts the cost of your contractor surety bond. Contractor surety bonds range in premium prices from between $100 and $2,625 or more per year (especially when coverage is for one million dollars and up).
Higher risk levels increase premium prices on every type of contractor’s insurance. Each trade has pricing differences for its premiums as well. For example, a locksmith might pay an average of $400 per year for general liability, while a roofer might pay over $3,500. General contractors might pay an average of $1,000 general liability premiums per year, while snow-and-ice removal services pay only $600 (approximately).
Contractors Insurance Coverage - Best Providers
Most contractors insurance coverage prices are available by direct quote only. This is because each job is unique and has individualized coverage needs based on multiple factors. The best contractors insurance providers know this and are prepared to offer flexible coverage at affordable prices based on your qualification factors. Some of the best contractor’s insurance providers available today include: