Construction businesses face a variety of risks on any project, all of which can wreak financial havoc if they aren’t protected. Many of these risks can be entirely avoided by taking small steps before and during a project — especially when it comes to the payment risks that contractors confront every day.
But there are plenty of other dangers that can be impossible to predict or prevent. Contractors can purchase insurance coverage to protect their business from the financial impact of most of these unforeseeable challenges.
Some form of insurance is usually required to get licensed as a contractor. However, there are several types of insurance available. It can be confusing to know which ones are best for your business, so we’ve put together this short guide to provide some basic information to help you make the best decision for your company.
Table of Contents
16 types of contractor insurance
General liability insurance
Contractor general liability insurance covers claims alleging property damage or bodily injury caused by you or your workers. It also protects you from legal fees if a customer files a lawsuit alleging property damage or bodily injury, and it pays for your defense from allegations of slander or libel.
Do contractors need liability insurance?
When cash is tight, contractors may wonder if they need contractor liability insurance.
The answer is: Yes. Learn why and how to get it.
Workers compensation insurance
Workers compensation insurance is required in most states if you have employees besides the business owner. The insurance protects workers and businesses if one of the employees becomes sick or injured on the job. It covers medical expenses and lost time wages.
Employer’s liability insurance
Employer’s liability insurance is usually part of workers compensation coverage and protects you if an employee sues the company due to an injury or illness. Coverage includes costs like lawyer’s fees, court fees, and the payment of a settlement or judgment.
Umbrella insurance is additional insurance coverage that provides protection beyond existing limits and coverages of other policies. It can also provide coverage for claims that may be excluded by other policies.
Automobile insurance covers company-owned vehicles and equipment from damages from motor vehicle accidents, theft, and vandalism. This type of coverage is required when the company purchases a vehicle for employee or owner use.
Builder’s risk insurance
Builder’s risk insurance (also called course of construction insurance) is property insurance that protects buildings while they are under construction, either during a remodel or new construction. It helps mitigate the risk of certain damages while a project is in the construction process. It can be purchased by the project owner or general contractor and covers all parties on the project.
Inland marine insurance
Inland marine insurance is a type of business insurance that helps cover materials and equipment while they are being transported on land, such as by truck or train. This coverage is meant to help protect business property that is movable, in transit, or used for transportation purposes. This type of insurance is often paired with builder’s risk to cover projects and materials in transit.
Contractors who perform small projects or install equipment may purchase an installation floater. It is similar to builder’s risk and covers equipment and materials while installation is in progress.
Equipment rental insurance
Rental equipment insurance is an insurance policy available to contractors who rent equipment, tools, and other items. The coverage can be purchased from the rental vendor for short-term rental insurance that is prorated for the duration of the rental period or a minimum coverage period. Contractors can also purchase a policy to cover all their rental needs, often saving them money over the vendor policies.
Business interruption insurance
Business interruption insurance is insurance coverage that replaces income lost in the event you’re your business is halted due to direct physical loss or damage, such as might be caused by a fire or a natural disaster. This type of insurance also covers operating expenses, a move to a temporary location, if necessary, payroll, taxes, and loan payments.
Cyber insurance generally covers your business’ liability for a data breach involving sensitive customer information, such as Social Security numbers, credit card numbers, account numbers, driver’s license numbers, etc. This type of coverage is often excluded from general liability policies and must be purchased separately.
Asbestos abatement liability insurance
Asbestos abatement insurance consists of two types of pollution liability policies.
Contractors Pollution Liability (CPL) policies are designed for claims against contractors for pollution events related to their abatement operations. This includes claims for injury, property damage, and cleanup costs.
Pollution Liability (EIL) policies are designed for claims against asbestos abatement contractors for pollution events related to their owned facilities where they may store equipment or hazardous materials, including asbestos waste.
Roofers liability insurance
“Roofing insurance” is actually a general term to describe a bundle of policies that provide protection for roofers and their employees. General liability insurance — also referred to as roofing liability insurance — covers you and your business against property damage or accident claims, as well as the costs of a resulting lawsuit. Additionally, this insurance can cover some of the costs of your roofing tools and equipment if damaged on the job.
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Pollution liability insurance
Pollution liability insurance policies cover claims for bodily injury and property damage caused by hazardous waste materials released during a company’s business operations. This insurance covers you while working on a job, and also covers your completed operations. In other words, if there is a problem with hazardous waste materials after you have finished a job, you are protected from any liability issues.
Drone liability insurance
A drone liability policy protects you from third-party claims of property damage or injury, like accidentally crashing your drone into a building or someone else’s car. Hull coverage protects the drone itself from damage during missions.
Professional liability insurance
Professional liability insurance helps cover you and your company if you make a mistake in your professional services, usually design services. This coverage is also known as errors and omissions insurance (E&O) or as professional indemnity insurance. Contractors that also provide in-house design services will want to make sure they have this type of coverage.
Protect yourself from risk — including financial risk
Insurance coverage is available for most types of risks contractors face. But it’s up to contractors to protect themselves from one of the biggest financial risks in the industry: the risk of non-payment.
Financially, contractors are very fortunate that most instances of payment risk are almost entirely avoidable. For general contractors, that includes requesting, collecting, and tracking lien waivers from every single party on the job. For subcontractors, suppliers — really, for everyone in the industry — that means securing your payments by managing your lien rights on all of your jobs and projects.
Other risks, however, can be more concretely addressed by purchasing insurance policies that cover the risks you expect to encounter. Buying insurance can be expensive, especially for small companies, but it is required in many areas and can quickly pay for itself with the first claim.