No matter what type of construction business you own, there are regulations and requirements you must meet before you’re legally allowed to conduct business in your state or locality. In many cases, your business must be bonded and insured before you can serve your clients or bid on jobs in your area.
Carrying the proper insurance coverage is crucial to your workers’ safety and the financial future of your company. Without the right coverage in place, you could face extensive legal and financial issues that are likely to put your business in jeopardy. Specific insurance requirements vary by industry and location but these are some of the most common types of insurance construction companies are required to carry.
1. General Liability Insurance
General liability insurance is one of the most important types of coverages. This type of insurance protects your business from damages or injuries claimed by another party. Most businesses carry general liability insurance to financially protect their companies from litigation that occurs when another person gets injured or experiences property damage and believes the business was at fault for the incident.
For example, if a pedestrian walks through a construction site and falls due to uneven pavement, they may pursue compensation for medical bills through the construction company. General liability insurance may cover these medical costs if the construction company is found at fault for the incident.
This type of insurance is also referred to as commercial insurance since it’s the most common type of business insurance. Most major insurance companies offer general liability insurance and the cost depends on the specific coverage and type of construction jobs you perform. In 2019, the average cost for a general liability policy in the U.S. was $340, though quotes for insurance in your area may vary.
2. Surety Bonds
You may be required to buy a surety bond before obtaining your contractor’s license or before you can bid on certain construction jobs. This bond insures the agreement that’s made between your construction company and the client, so both parties are protected. The cost of surety bonds can vary wildly, depending on the specific type of bond, your credit score, and other factors.
You’re required to hold up your end of the contract and the client is required to make the appropriate payment when work is completed. Before you can obtain your contractor’s license or bid on jobs, you may also be required to buy different types of bonds, such as the following:
- Bid bond: A bid bond ensures both the project manager and the contractor agree to the terms of a job. It holds both the contractor and the project manager accountable for the tasks and specifications outlined in the contract.
- Performance bond: Like a bid bond, a performance bond is a type of contractor bond. However, this bond is designed to solely protect the client named in the contract. It insures the construction company or contractor’s performance and if the job isn’t completed as outlined in the contract, the client may pursue a claim for reimbursement.
- Contractor license bond: Some contractors are required to purchase license bonds before they can bid on projects or start contract work. These bonds protect the county and client by ensuring the contractor will act ethically and responsibly, following all building codes and other regulations.
Bond insurance is important for construction companies, contractors, project managers, and clients because they cover incidents involving breaches of contract. The cost of your bond insurance depends on the types of bonds you’re required to carry, the size of the projects you’re involved in, and your company’s value.
You may be able to choose the bonding company you purchase coverage from but your coverage requirements depend on your state’s regulations and the job you’re bidding on.
3. Workers’ Compensation Insurance
Most construction companies employ workers who are exposed to hazards every day. States may require these companies to carry workers’ compensation insurance to protect their workers.
This insurance covers medical bills and other expenses related to injuries that occurred on the job. It financially protects workers who take risks performing their jobs on construction sites. For example, if a construction worker fell from scaffolding and hurt his back, worker’s compensation would help pay for medical bills and may pay for lost wages while he recovers.
The cost of workers’ compensation insurance depends on the coverage you’re required to carry, the number of workers and contractors you have, and the risks associated with your tasks and job sites.
4. Builder’s Risk Insurance
The materials and structures on a construction site are at risk for natural disasters, vandalism, theft, and weather events. Builder’s risk insurance protects the job site and the materials on-site from these types of losses.
Both the contractor and client are protected with the builder’s risk insurance because it ensures the project isn’t delayed and costs aren’t increased due to a covered loss. Your premium for builder’s risk insurance varies, depending on the size and length of the project, as well as the materials involved.
5. Commercial Auto Insurance
Whether you own a big or small construction company, chances are, you need several vehicles to complete projects. You may need to operate heavy machinery, trucks, vans, or other commercial vehicles. Commercial auto insurance provides coverage for these vehicles in case you or a worker are involved in an accident.
Your coverage requirements depend on your state and the client you’re working with. You must carry liability coverage to protect other parties but you should also consider adding coverage for your vehicles. Your policy cost depends on the coverage you choose, your location, your driving history, the number of drivers on the policy, and the type of vehicles you need to insure.
6. Cybersecurity Insurance
Technology is integrated in most business practices and even in the construction industry, you’re likely to use software for many tasks. If you store sensitive data or operate machinery using technology, consider purchasing cybersecurity insurance.
This insurance protects you from data breaches or other technology-related mishaps. Your premium depends on the type of software you use and what you need to protect, as well as the current cybersecurity precautions you take.
7. Pollution Liability Insurance
If you’re found at fault for a pollution-related incident on a job site, pollution liability insurance helps you financially mitigate the situation. Most general liability policies don’t cover pollution losses, but you may be able to add this coverage to your existing policy.
If not, you’ll need to purchase a stand-alone policy, and the premium you’ll pay depends on the size of your company and the risk factors at the job site. For example, if the project involves the use of different chemicals or is located on protected land, your premium may be higher.
You may be required to provide certificates of insurance for each project to show you have the right coverage in place. Carrying the proper bonds and insurance coverage not only satisfies state and project requirements, but it also protects your workers, business, and livelihood from financial disaster.