Insurance is a necessary evil. We hate paying for it. However, when we experience a car accident or flooding in the house, we thank our lucky stars that we made those monthly or quarterly payments. The same goes for businesses. In construction, the jobs are riskier and contracts are more complex. This makes construction insurance more critical to ensuring business owners meet their commitments to their customers and employees.
Why do we need construction insurance?
In order to bid and subsequently be awarded a project, many project owners require contractors to be bonded and insured. Bonding protects the project owner in terms of non-performance on the contractors. On the other hand, construction insurance protects the business owner in instances that may incur financial hardship.
Construction businesses assume a lot of risk. The hazards on a construction site and the physical nature of the work pose an enormous safety risk on workers. The payment terms of progress billing or pay-when-paid pose an enormous financial risk on organizations. Contractors are front loading the costs and expenses and jeopardizing their cash flow and financial security. Even after projects are completed and handoff has occurred, warranty issues may arise that incur rework at the contractor’s expense.
Different types of construction insurance
As you can see from the examples above, construction insurance is a necessary evil to ensure the longevity and financial stability of your business. Below, we provide an overview of the many different types of construction insurance available to cover different scenarios.
Commercial General Liability
This is a fundamental insurance coverage that a contractor should acquire to protect against lawsuits and other financial hardships. General Liability insurance covers injury to others as a result of your work and employees; property damage of your own property; property damage of someone else as a result of your work or employees. Whether the injury or damage was caused by your work or individual employees, commercial general liability would offer protection.
Loss of Income
As we’ve seen in 2017 with Hurricanes Harvey and Irma and wildfires in California, natural disaster cause devastating effects. When workers are affected or your property and equipment this can cause major disruption to your business. Loss of income coverage is important to provide income to yourself and your employees during such a business interruption.
Construction is dangerous work. Accidents, and in extreme cases death, occurs at the jobsite. Many states require construction companies to provide coverage for an employee’s medical treatment and loss of income due to job-related injury or death.
Commercial and Rental Vehicle coverage
Vehicles and equipment are important assets in construction and need insurance coverage. Purchasing commercial vehicle coverage provides similar protection as auto insurance in the event of any injuries or damage caused by your employees.
Professional Liability insurance
As the subject matter expert, the project owner is endowing a certain amount of trust on the contractor’s professional advice and workmanship. However, occasions arise when owners provide claims of negligence or poor workmanship. This type of professional liability insurance is often referred to as Errors and Omissions or Faulty Workmanship coverage. This coverage covers legal costs against such claims and any necessary rework that must occur.
This is an important add-on that will provide an additional layer of protection on top of your other policies. Typically, umbrella coverage is an easy and affordable way to increase coverage limits. If one of your drivers and vehicles is in a catastrophic accident which tops your commercial vehicle policies limits, umbrella policy provides additional coverage so you do not have to pay out of pocket. Similarly for claims beyond Workers Compensation, General Liability, or Professional Liability coverage, an Umbrella Policy can be your saving grace.
Dangers of not having adequate construction insurance
These are just some of the major different inclusions in construction insurance. Coverage limits and policy details differ by packages and vendors. It is important for business owners to read the details of coverage to ensure they have adequate coverage based on their revenue and number of employees. Dangers of not having the right insurance and adequate coverage amount may jeopardize the financial health of a company.
Having the right construction insurance and adequate coverage ensures that your business can pay for legal fees, damages, and fines imposed. Any amount over what insurance policy provides, your company is still responsible for. The fees will come out of the pockets of your business accounts. Unfortunately, if your company cannot afford the additional fees, then you may need to pay the fees from your personal account. Those may be extreme circumstances, but there are war stories of many companies and individuals going bankrupt. Safeguard the financial futures of your company, your employees, and your family by ensuring you have the right construction insurance and more than enough coverage.