Construction Insurance 101: Essential Coverages for Contractors

What Is Construction Insurance?

Construction insurance refers to a range of commercial policies designed to protect contractors and projects under construction. Since every contractor’s needs vary, there’s no one-size-fits-all construction insurance policy. Instead, your agent will help tailor a mix of coverages to match your specific needs and safeguard your business against the most relevant risks.

Who Needs Construction Insurance?

Regardless of your operation, construction business insurance is essential for protecting your business, assets, employees, and clients. Here’s a quick overview of the contractor categories we commonly insure:

• General Contractors: Contractors who typically oversee construction projects and hire subcontractors for specialized work.
• Artisan/Trade Contractors: Contractors who specialize in particular trades or services, such as carpenters, drywall installers, electricians, flooring contractors, framers, glass and glazing contractors, HVAC contractors, insulation installers, landscapers, painters, plumbers, residential remodelers, and tile setters.

What Types of Insurance Do Contractors Need?

Many insurance coverages can help protect contractors throughout a project, with some construction insurance policies being required by law. The types of construction insurance you need will depend on your specific operations and the state(s) in which you perform work, but a well-rounded policy may include:

General liability

General liability coverage helps cover financial losses related to lawsuits and third-party claims involving bodily injury, advertising-related issues, or property damage caused by your business operations. Claims can range from slip-and-fall accidents on a job site to damage caused by faulty workmanship. Many states require contractors to carry a minimum level of coverage to obtain a license or secure contracts.

Property Insurance

Property insurance helps cover financial losses related to the damage or loss of owned or leased buildings, as well as the assets inside, including tools, equipment, and inventory. Covered risks can include fire, theft, vandalism, and certain weather-related events. Many clients and contracts require contractors to carry property insurance.

Workers’ Compensation

Workers’ compensation insurance is designed to cover lost wages, medical and rehabilitation expenses, and, in some cases, funeral costs or death benefits for employees injured on the job. It helps businesses protect both their bottom line and the wellbeing of their employees. In most states, workers’ compensation is mandatory for businesses with a certain number of employees.

Builder’s Risk

Builder’s risk insurance, also known as course of construction insurance, provides coverage for buildings and structures under construction, protecting against damages like fire, vandalism, and weather-related incidents. Suitable for projects of all sizes — from residential remodels to large commercial builds — it generally covers materials, supplies, fixtures, and machinery intended for permanent installation. Builder’s risk insurance is usually purchased by the project owner or general contractor and can be customized to address project-specific risks like theft, personnel errors, or delays.

Commercial Auto

Commercial auto insurance provides coverage for company-owned vehicles, such as trucks and vans, protecting against damages from accidents, theft, and vandalism. It’s required in every state for vehicles used by businesses, including those owned, leased, or hired. Commercial auto policies typically include liability coverage to help shield your company from costly litigation arising from accidents. Whether you operate a small business or a large fleet, commercial auto insurance helps you reduce exposure to high repair costs, medical expenses, and legal fees.

Professional Liability Insurance

Professional liability insurance, or errors and omissions (E&O) insurance, protects contractors against claims of mistakes or negligence in their work.* For example, if you install plumbing incorrectly, leading to water damage in the client’s home, the homeowner may sue for repair costs. An E&O policy helps cover legal costs, defense fees, and any settlements or judgments.

Inland Marine

Inland marine insurance is designed to cover property in transit over land or stored off-site, helping protect assets from risks like theft, fire, and weather events. For contractors, this insurance typically applies to tools and equipment — from large machinery like excavators and forklifts, to smaller items like drills and saws. Many inland marine policies provide coverage regardless of location. These policies are often called “floater” policies because they offer coverage that follows the insured property wherever it goes.

Umbrella Insurance

Umbrella insurance provides an extra layer of protection by extending the limits of your existing liability coverages, such as general liability and commercial auto insurance. It typically kicks in when the limits of your primary policies are reached, helping cover additional costs like legal fees and medical bills. For contractors, umbrella insurance is crucial for managing risks inherent to the industry, as it offers financial protection against catastrophic losses that may exceed the limits of your primary policies.

Other Important Considerations for Contractors

In addition to your insurance policies, there are several key factors contractors need to consider for well-rounded coverage and compliance. Make sure you do the following:

Request Certificates of Insurance for Subcontractors: Ensure that all subcontractors carry the appropriate insurance. This helps prevent liability gaps and ensures your entire team is adequately protected.

Follow State and Industry-Specific Regulations: Requirements can vary by state or project type (e.g., government vs. private projects). Stay informed about local regulations to ensure compliance and avoid potential penalties or fines.

Secure Appropriate Surety Bonds: While surety bonds provide financial protection, they differ from insurance in several ways. Here are some common types of construction bonds and the protections they offer:

• Performance Bond: Guarantees the contractor will complete the project according to the terms of the contract. If the contractor fails to meet the terms, the bond protects the owner from financial loss.
• Payment Bond: Ensures subcontractors, laborers, and material suppliers are paid for their work, helping to maintain trust between all parties.
• Maintenance Bond: Provides protection against faulty or defective materials for a specified period after the project is completed, similar to a warranty.
• Bid Bond: Guarantees that the bidder will enter a contract if awarded the project, protecting the project owner from bid-related issues.
• Supply Bond: Ensures a supplier will provide the required materials. If the supplier defaults, the bond compensates the purchaser for any covered losses.

How Can Contractors Reduce Risk?

There are many ways that contractors can reduce risks and keep operations running smoothly. Here are a few strategies to help minimize exposure to potential losses:

• Ensure Subcontractors Have Insurance: Verify and track that your subcontractors carry proper coverage to avoid gaps in protection.
• Implement Risk Control and Safety Programs: Establish proactive safety measures, conduct regular training, and ensure employees follow proper safety procedures to prevent accidents.
• Conduct Employee Trainings: Maintain a safe and reliable work environment with well-trained employees that are more likely to avoid accidents and costly mistakes.
• Perform Routine Maintenance: Regularly inspect and service tools, equipment, and job sites to identify and address hazards before they lead to injuries or damage.
• Invest in the Right Insurance: Make sure your insurance coverage evolves with your growing business needs and regularly review your policies to ensure you’re covered against emerging risks.

How Much Does Construction Insurance Cost?

The cost of construction business insurance can vary based on several factors. Key elements that influence your premium include:

• Claims history
• Coverage limits and deductibles
• Credit history of the business or policyholder
• Employee training and safety protocols
• Equipment used
• Industry experience
• Location(s)
• Materials handled
• Number of employees

To potentially lower your premiums, focus on enhancing safety protocols, implementing risk control programs, training your employees, and maintaining a favorable claims history. The most accurate way to determine your insurance premium is to get a quote from an agent.

How Do I Choose the Right Insurance Company?

Selecting the right construction insurance company is essential to protecting your business. A trusted provider will offer expertise, financial strength, and robust coverage tailored to your needs — while staying within your budget. Look for these qualities:

• Industry expertise
• Financial stability
• Risk control programs
• Customizable coverage
• Strong customer service and reputation

At Westfield, we are committed to helping contractors like you secure the coverage you need. Contact an agent today for a customized quote.