Many insurance policies exist to protect property owners, developers, contractors, and other workers throughout the course of a construction project.
The type of insurance that you’ll need to get will depend on your relationship to the project and other factors, such as how long it will take and the type of property being covered. It’s also fairly common for insurance companies to bundle certain policies together to offer packages for specific scenarios or within certain trades.
There’s a lot to learn about insurance in the world of construction, so we’re here to help you every step of the way. In this article, we’ll outline the most common types of construction insurance, what they cover, and how you can best manage your various policies through a highly-rated insurance provider and advanced certificate of insurance services.
What is Construction Insurance?
The term construction insurance can mean any of a range of COI insurance policies aimed to protect construction projects, properties, companies, and workers. Due to the high-risk nature of the industry, these policies are considered a necessary part of construction management. Construction insurance policies provide coverage for things like:
- Worker injuries
- Property damage
- Third-party claims
- Physical damage to the building, construction site, or materials
- Other unforeseen events that could cause financial losses or lead to project disruptions
The importance of construction insurance cannot be overstated. Building projects come with lots of built-in risks. Heavy machinery, hazardous materials, and many moving people are typically present on a job site. Additionally, unexpected events like accidents, fires, other natural disasters, and theft can lead to huge financial and timeline setbacks.
Whether a highly anticipatable accident, an unexpected one, or a rare project that gets completed without any hiccups or holdups, insurance helps keep construction projects safe and protected from financial losses.
What Are the Three Main Types of Construction Insurance?
While there are many kinds of protections that construction companies and independent contractors can purchase to mitigate risk for themselves, a few stick out as the typical “must-haves.”
Let’s go over the three most common types of insurance in the construction industry and explain their importance in keeping sites, companies, and workers protected.
What is General Liability Insurance?
General liability certificate of insurance, or GLI, is a fundamental type of insurance for construction companies. It provides financial coverage for third-party claims related to bodily injury, property damage, or personal injury on the site or related to construction activities. It will protect companies from having to pay out of pocket for legal liabilities or financial losses associated with those kinds of claims.
For example, let’s say that a visitor comes to your construction site and gets injured while there. Your general liability insurance policy would cover the medical expenses for the injured person as well as the legal fees associated with the claim. If other properties were damaged during that time, professional liability insurance would also help cover the repair costs.
Workers’ Compensation Insurance
Workers’ compensation is insurance meant to provide benefits and medical care to workers who become ill or injured from their duties.
Workers’ compensation is required in many states as it is considered a very important protection for people from dangerous working conditions. It provides coverage for medical expenses, lost wages, rehabilitation costs, and other expenses for those who are injured on a job. This both provides the worker with the necessary financial support and care to get them back on their feet and protects you as the construction company from potential related lawsuits.
For example, if one of your construction workers falls from scaffolding and breaks his leg, workers’ compensation insurance would cover the medical bills and provide wage replacement while he is out of work recovering. This coverage protects worker well-being and helps foster a safe working environment.
What is Builders’ Risk Insurance?
Builders’ risk insurance, also known as course of construction (COC) insurance or building certificate of insurance, is a specialized kind of property insurance that provides coverage for buildings while under construction. It can also cover materials on-site, temporary structures, and sometimes even materials in transit or that are stored off-site.
Most COC policies will protect against only certain types of damages – typically things like theft, weather-related damage, or vandalism. This coverage is important to hold because most commercial property insurance will not protect structures that are under construction.
For instance, if your building under construction burns to the ground in an unexpected fire, builders’ risk insurance would help cover expenses for the needed materials and equipment to begin rebuilding.
Builders Risk Insurance: A Crucial Protection
Let’s dive deeper into protection that is not always well-understood in the construction space: builders’ risk insurance. As explained, this policy provides coverage for structures while they are being built or renovated, as well as relevant materials.
You should purchase builders’ risk insurance when preparing to work on a construction project where any kind of building or structure is involved. You should purchase the policy before the project begins so that it can be in effect from the start date until the project is completed.
Some benefits of carrying builders’ risk insurance include:
- Financial Protection: Unexpected events can cause lots of damage to a construction project, bringing with them large costs. Being insured against unexpected events will protect you financially from having to cover those losses out of pocket.
- Risk Mitigation: By being protected against various events and perils, you help mitigate the level of risk associated with your construction projects. This makes it so that in the event of a damage or loss, work can likely continue without significant setbacks.
- Compliance: Lenders, clients, and state governments are some of the entities that often hold insurance requirements. Some entities require builders’ risk insurance specifically as a condition of awarding a construction contract. Consider the area you’re operating in and avoid compliance breaches by ensuring that you hold adequate coverage.
- Peace of Mind: Ultimately, it gives project managers, contractors, and other stakeholders peace of mind to know that their investment is protected through this important coverage.
- Legal Compliance: Helps ensure that your project complies with local, state, and federal regulations, avoiding fines and legal issues.
- Business Continuity: Helps ensure business continuity by covering losses and allowing projects to proceed even after an incident.
- Client Assurance: Reassures clients that their investment is protected, which can be a deciding factor in winning contracts.
- Enhanced Project Management: Provides peace of mind, allowing project managers to focus more on the quality and efficiency of the project rather than potential risks.
What Are the Best Construction Insurance Companies?
When evaluating insurance companies, consider several factors related to their offerings and your policy needs, including criteria such as:
- Financial strength. You want your insurer to be financially established so that, in the case of an accident, they can provide cover to take on a potentially large monetary burden.
- Cost. While costs will vary from provider to provider, you are not likely to get an up-front estimate from a company without spending enough time with them to provide project details. However, cost and available discounts will, of course, be factors in determining which insurer to work with.
- Customer Service. Policyholders interact with their insurance provider fairly often, including each time a policy is updated, a file is claimed, or a question comes up about the policy. Therefore, customer service is hugely important in this industry and important to consider when choosing a supplier.
- Reputation. It can also be helpful to learn how others feel about the insurer you wish to work with. Look into customer reviews and other pieces of their online presence to determine if their reputation aligns with your company’s values and needs.
Each insurance provider comes with their own pros and cons. For example, larger firms like Progressive and Liberty Mutual will offer robust coverage options and competitive premiums but may have a slower claims process due to their size. On the other hand, companies like Chubb pride themselves on specialized insurance packages, but premiums may be more expensive than competitors.
Here are some examples of highly recommended insurance companies for construction coverage:
- Progressive
- Liberty Mutual
- The Hartford
- Zurich
- State Farm
- AIG
- Nationwide
- Next
- Chubb
- Insureon
The Importance of Insurance in Construction Projects
Still, wondering why insurance is crucial to construction projects? You won’t be for much longer.
Let’s summarize the necessity of insurance in a few bullet points below:
- It lets you get projects done on time. Insurance coverage has a major impact on a project’s success and security. Keeping things as safe as possible will help a project stay on track, and insurance makes it so that even if something goes wrong, it doesn’t lead to major delays. In an often time-sensitive industry, insurance can make all the difference.
- It helps you stay on budget. While insurance policies will come with a cost that will vary depending on the provider, it’s a purchase that always pays off. That is because it’s better to be safe than sorry, and the cost of insurance protection will surely be less than the out-of-pocket cost to cover damages from claims or fines for breaches of compliance.
- It allows you to reduce the ramifications of risk. There’s no way to 100% guarantee that a construction project will be risk-free. However, you can do your due diligence to ensure that all properties and workers (such as contractors and other third-party vendors) are properly ensured, reducing the consequences of both likely and unlikely risks.
When selecting insurance coverage, be sure to consider the specific needs of your project, site, and workers. You can also consider various insurance providers before purchasing a policy, evaluating factors like their reputation, financial stability, coverage options, claims process, and anticipated cost to find the best-fitting coverage for your project.
Gain Confidence in Your Construction Compliance
We know how hard it can be when you don’t understand your necessary insurance requirements or feel in control of your company’s compliance.
Our team of experts has been in your shoes, and their industry knowledge helped inform our leading-edge compliance management software with those struggles in mind.
With myCOI’s team of experts, you’re always in good hands. Learn more about how we keep our clients compliant and how we can do the same for you. Book time to talk today.