How to Choose the Right Contractor Insurance Coverage

Are you a contractor? If so, you should unquestionably invest in contractor insurance, which is usually required by construction and licensing boards. 

There are several factors that affect the choice of such coverage, including the relationship of the policyholder to the project, the type of entity, and the property type to be covered. There are numerous commercial insurance brokerages, such as contractorbond.org, addressing the needs of the construction industry. 

The information below will help you choose the right coverage.

General liability

General liability insurance offers liability protection to businesses in the event of property damage or bodily harm in the course of business. Insurers create different policy versions for professionals working on various construction projects. Contractors, property owners, and construction companies can all take the role of policyholders protected from unnecessary risk. 

Even though policies vary across projects, the majority of them cover faulty workmanship, bodily injuries, property damage, medical payments, personal and advertising injuries, etc. Contractors are usually required to have liability insurance by law in certain states. For instance, those in California aren’t legally obliged to obtain it. Nevertheless, they would have a hard time obtaining different projects if they didn’t. 

Furthermore, companies that work on design-build projects are strongly recommended to consider such coverage in case they end up sued for mistakes. Subcontractors are often required to have general liability insurance so as to get hired by contractors. These policies are available for different types of business, such as residential contractors, remodelers, developers, HVAC, electrical, and plumbing contractors. 

Additionally, this form of coverage comes with certain exclusions, which are precisely defined in the policy. The most common exclusions involve expected or intended damage, contractual liability, workers’ compensation, etc. For example, a policy won’t cover an action done intentionally or bodily injuries and property damage when assuming another party’s liability through a contractual agreement. 

Builders risk

Builders’ risk, known as course of construction insurance, refers to coverage for buildings and structures undergoing construction. It covers foundations, building materials, outdoor fixtures, paving, fencing, temporary structures like scaffolding, as well as any trees, plants, or lawns installed by builders. In most cases, insurers cover the most basic construction projects, such as residential remodeling, small projects like door replacement, residential new construction, model homes, construction of commercial properties, etc. 

Nevertheless, in case your construction project or structure type is unique, you will be offered policies for your unique project needs. In general, builders’ risk insurance offers protection only against certain forms of damage caused by weather conditions, fire, and vandalism. Therefore, insurers provide policyholders with premium coverage options, which are costlier but extend the scope of coverage. 

Flooding and earthquake damages aren’t usually covered unless coverage for such events is included in the policy. Insurers are also likely to specify certain exclusions in the policy to protect themselves from covering any damage that occurred due to policyholder negligence. 

Errors and omission 

Another type of contractor insurance to consider is errors and omission coverage, which protects businesses against claims that stem from errors in their work. For instance, if a plumber makes an error during the installation of a plumbing system, which forces the owner to pay for costly repairs later on, the property owner is likely to sue the plumber to recover the expenses. 

In such a scenario, the error and omission policy of the plumber may cover the claim. Generally, contractor errors and omission insurance is designed to cover financial losses instead of covering bodily injuries and property damage. 

Inland marine

Another type of coverage for policyholders to consider is inland marine insurance. While the name might be confusing, it comes from a time when these policies protected ocean-bound vessels and materials. Nowadays, these policies are mainly used for covering tools and equipment used by contractors in the construction industry. 

Consequently, it’s usually referred to as contractor equipment insurance. It covers contractors’ equipment, tools, supplies, clothing, mobile equipment, computer equipment, borrowed or leased equipment, etc. Such coverage also provides protection against equipment theft from job sites, damaged tools during transport, fire, or natural disaster. 

In conclusion

Although it’s not mandatory in all states, contractor insurance is highly recommended in the construction industry!

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