Insurance protects companies from risk — and general contractors have many risks involved in their work. Some companies may try to save money by not purchasing insurance. This works, until there’s a problem, and then the company pays for it. If you are a GC operating without general contractor insurance, or wondering what insurance you need to buy, we’ve got the answer.
Why general contractors need insurance
There are many risks in having a general contracting business, including theft, accidents, injuries, and legal actions. Insurance provides protection from business-related losses, like those listed above. It prevents you from having to pay for damages caused by you, your employees, or a third party. These damages could bankrupt your business without insurance coverage.
General contractors are often required to be licensed in many states. The requirements for licensing include providing general liability and workers comp insurance coverage. Many contractors purchase these insurance policies because they are required to legally do business.
Project owners may require specific insurance policies from general contractors on their projects. This is to protect the owners from damages caused by the contractor, employees, subcontractors, or third parties outside the project.
Many states require workers compensation coverage if a contractor employs workers. This is to protect the company and the workers in case someone gets injured.
If your company owns and operates vehicles or large equipment, you are required to have commercial automobile insurance coverage. It is similar to your personal policy but with higher limits based on the number of vehicles owned.
If your company owns any other assets, like a building or tools, you’ll want to cover them with property insurance. Otherwise, you have to pay to replace them if they are stolen, lost, or damaged on site.
Property owners want to hire insured GCs
Besides the fact that most states require general contractors to be licensed — which requires insurance — there are a few reasons property owners want to hire an insured contractor.
An insured contractor can cover costs if their employees cause damage to a building. Accidents happen, and even the most careful contractor can make a mistake. If the contractor is not insured, the property owner may have to foot the bill to repair all the damages.
An insured contractor has made an investment in his or her reputation and shows that they are committed to their business. An uninsured contractor may be here one day and gone the next.
Insured contractors are generally licensed, which protects you from substandard work. Licensing boards often have discipline options if the contractor does not provide quality work. Using unlicensed contractors leaves the quality in your hands.
Insurance companies can choose to deny claims caused by unlicensed and uninsured contractors. That means you might be responsible for all the damages or rework caused by an unlicensed contractor. Although a licensed contractor may charge more, you get the protection of knowing they will handle their own mistakes.
What types of business insurance do general contractors need?
There are several types of insurance that general contractors may need to purchase. Some of these are project specific, so check with the project owner to see if you are required to purchase them.
General liability insurance
General liability insurance protects contracting businesses from losses due to theft, accidents, vandalism, third-party injuries, and legal actions. It is the basic business liability insurance that all businesses should have.
Workers’ compensation insurance
Workers compensation insurance covers employees in case they are injured on the job. It protects the business and its employees from the high costs for medical treatment and rehabilitation.
Automobile insurance covers on the road vehicles owned by the business in case of an accident. It protects the business against uninsured motorists and provides the liability coverage required by law.
Equipment rental insurance
If your company rents or leases equipment from a rental company, you may purchase coverage to insure that equipment against theft, vandalism, or accident. This type of insurance is usually available from the rental company, but you are also free to purchase your own coverage.
Umbrella insurance extends coverage of an existing policy or policies to provide higher limits. You can’t purchase umbrella insurance by itself, it’s always part of a package with other coverages.
If your contracting business owns a building or tools and equipment, you may want to purchase property insurance to protect your investments. These policies protect buildings and equipment from theft, vandalism, or damage caused by an accident.
Builder’s risk insurance
Builder’s risk insurance protects construction projects while they are in progress, protecting the materials installed from vandalism, theft, or other damage. This policy may be required by your contract with the owner, so be sure to read it carefully.
Make sure all your lower tier contractors and subcontractors are insured. Some have trade specific policies they can purchase to cover their type of work. It’s important to know that uninsured and unlicensed subcontractors are added to the general contractor’s premium to cover their work. Always verify your subcontractor’s insurance and licensing status before they begin.
Costs for general contractor insurance
How much your general contractor’s insurance will cost depends on several factors:
- The amount of coverage you need, which will depend on how many vehicles and employees you have, and the required limits of coverage
- The amount of deductible
- The location you’re working in
- Your claims history
Contact an agent or insurance company directly to get a quote on coverage for your company. You will have to provide company information and financial documents to show how long you’ve been in business and the types of projects you work on.
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