When you’re in a business like construction, you never want to leave yourself vulnerable. From natural disasters to vandalism and theft, anything can go wrong at any time - and that financial fallout can leave your business scrambling to pick up the pieces. This is why construction insurance isn’t a nice to have, it’s a necessity.
Thankfully, a lot of insurance companies offer specific policies made for contractors, but it can be overwhelming trying to find the policies you need. To simplify your search, we’ve rounded up the most common types of construction insurance for general contractors and subcontractors.
Key Takeaways
Generally speaking, your construction business’ insurance needs will be met with these types of insurance policies.
Also known as commercial general liability, this type of construction insurance protects construction companies against financial loss from third-party claims. These kinds of claims can include property damage, injury, or other issues caused by a contractor’s work.
In most states, general contractors need some level of general liability coverage to get a contractor's license. If you’re a subcontractor, you might also be required to hold general liability insurance to work for certain GCs.
General liability insurance covers risks like:
👉 Read more about general liability insurance for construction
Workers’ comp insurance protects both your business and your employees. If someone gets hurt on the job, this covers any related medical expenses and lost wages, so you don’t have to pay directly out of pocket.
Most states require businesses with a certain number of employees to purchase workers’ compensation insurance. You may have to provide this information to the state.
Workers’ comp isn’t just about meeting state requirements, it’s also just good business sense. If one of your team members is injured, workers’ compensation allows them to recover without worrying about medical bills (and allows you to keep projects moving forward).
Builder’s risk insurance (or course of construction insurance), provides insurance coverage for projects while they’re under construction. If a building is currently being constructed or remodeled, it’s protected under builder’s risk insurance.
Typically, both owners and general contractors hold builder’s risk policies.
A basic builder’s risk policy covers physical damage from fire, windstorms, vandalism, or theft to the following:
👉 Read more about builder's risk insurance for construction
Commercial auto insurance protects company vehicles and equipment like forklifts and excavators from damage.
If you’ve bought a vehicle or piece of equipment for your employees to use, you’re required by law to hold commercial auto insurance.
Your commercial auto insurance policy covers commercial vehicles and equipment in the event of:
Sometimes, your typical construction insurance coverage might not be enough, especially if you’re facing serious financial losses. Excess liability/umbrella insurance extends the coverage limits of your policies, just in case something catastrophic happens.
In construction, it’s always better to be safe than sorry. If you typically work on higher-risk projects with multiple subcontractors, umbrella insurance can give you the peace of mind that you’ll stay financially stable, even if something happens.
Some contracts, especially those financed by larger clients or government entities, may require you to carry an excess liability policy.
Surety bonds protect owners from losing money on a project. While they provide a level of financial protection like insurance, bonds are only tied to one project, while your insurance policy can cover multiple builds.
Surety bonds don’t protect you as the contractor, so why do you need them? If you want to take on bigger, more profitable jobs, you’ll have to buy surety bonds. Larger projects = more risk, so most owners on these types of jobs require bonds.
🔎 Dive Deeper: We teamed up with Brad Ballew, President of Ballew Surety Agency to do a deep dive into surety bonds. Read it now.
Depending on your type of business, you may need to consider specialized insurance policies. A few types of coverage that fall under this category include:
Environmental/Pollution Liability Insurance - If you frequently work with hazardous materials, pollution liability insurance will protect you from property damage or bodily injury claims stemming from hazardous waste or materials released from your operations. This type of policy covers you during and after a project is completed.
Inland Marine Insurance - This type of construction insurance covers equipment, tools, and project materials while they’re being transported to and from a jobsite by land.
Construction Wrap-Up Insurance (OCIP/CCIP) - Wrap-up insurance is an all-encompassing policy that protects all contractors and subcontractors working on large projects. These policies are usually purchased as an OCIP (bought by the owner) or CCIP (bought by the general contractor). They have more administrative time, but save money overall on insurance for the project.
Subcontractor Default Insurance - Subcontractor default insurance offers protection in the event that a subcontractor fails to meet the terms of their contract.
Just like health insurance, the cost of construction insurance will vary by policy. Your premium will be influenced by a few different things, including:
Basically, the insurance company wants to see how risky your business is. If you have more green flags than red, your pricing will reflect that.
Before we wrap up, here are a few tips to get the most out of your construction insurance policies:
Work with an insurance broker that specializes in the construction industry - While it might seem more convenient to get your business insurance from a big-name insurance company, we recommend choosing a provider that specializes in construction. Because they work with contractors every day, they’ll be able to outline your coverage options and help you choose the specific policies you need. Plus, they can help you bundle multiple policies together into a package that makes sense for your unique business needs.
Get proof of coverage - Project owners don’t want to bring just anyone onto their build. Once you win a bid, you’ll need to show proof of insurance in the form of a certificate of insurance (COI). Your insurance broker will create this document for you.
Make time for risk management - Construction insurance isn’t a set-it-and-forget-it type of thing. You have to actively manage risk within your business to avoid claims being made against you. The best piece of advice we can give you here is that risk management isn’t just the project manager’s responsibility — risk management is everyone’s problem. Take the time to implement solid risk management practices on the construction site, and everyone will benefit. Remember: The lower your risk, the less expensive you are to insure.
If you think construction insurance is just another set of entries on your growing list of overhead costs, you’re not wrong. Yes, insurance policies are expensive. But if the alternative is losing your business entirely, we think it more than pays for itself. If you want to build a construction business that can thrive for decades to come, you have to protect it with insurance.
💥 Read our complete guide to construction insurance.