Construction companies need insurance, but what kind? The answer depends on the size and structure of your business, industry hazards and geographic area, contract agreements, and even a project’s specifics. To help you assess what you have and what you might need, here’s a review of nine common insurance policies for contractors:
1. Workers’ compensation. A strong workers’ comp policy is essential, and often mandatory, for any business with employees — but especially for construction companies, whose workers face high injury risk. Coverage provides wage compensation and assistance with medical bills for on-the-job injuries or illnesses while protecting the employer from related lawsuits.
2. General liability. Often called commercial general liability, this policy covers damages and legal costs associated with third-party injuries (not to employees) and property damage claims caused by your company or a faulty product you installed. It won’t pay to repair faulty work but can cover the resulting damage.
3. Builder’s risk. This coverage provides financial protection against damage done to a structure still under construction — including costs resulting from fire, vandalism, weather, and on-site tool or equipment theft.
4. Professional liability. This is also called an errors and omissions policy. It covers legal costs when a contractor is sued over a mistake, such as using the wrong materials.
5. Umbrella. These policies provide supplementary coverage that absorbs costs exceeding the liability limits of another policy. Say you take on a project for which you’re contracted to carry $3 million of general liability insurance, but your insurance provides only $1 million of coverage. You could buy umbrella insurance for the remaining $2 million. Doing so may cost less than increasing the limit of your primary policy.
6. Commercial property. This type of policy safeguards your construction company’s physical property — including tools, computers, signage and furniture — in the event of fire, broken pipes, bad weather, theft or vandalism. If you don’t need property insurance but want your equipment protected, a contractor’s tools and equipment (sometimes called inland marine) policy may be ideal.
7. Commercial auto. Commercial vehicles require separate auto insurance coverage because they’re exposed to more risk than personal vehicles. This coverage provides both liability and physical damage protection for fleet vehicles including cars, trucks and vans. Some policies cover legal fees and the medical costs of others if an employee is at fault in an accident.
8. Cyberinsurance. Cyberattacks, such as ransomware, are a real, growing threat to businesses. At minimum, this policy covers liability for a data breach involving sensitive customer information — credit card numbers, drivers’ license numbers and so forth — that results in fraud or might reasonably be expected to cause it.
9. Bonding. Some project owners may require various types of surety bonds to guard against incomplete or faulty construction services. Being bonded means your construction business is financially sound enough to perform the work and won’t leave the customer holding the bill.
Your company’s insurance needs can change as your business grows or you move into other specialty areas. Work with an agent who understands the nuances of the construction industry and can help you identify must-have coverage. Your CPA can help you evaluate the costs.
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