Insurance for Contractors: A Complete Guide

The first recorded insurance contract was signed in 1347 in Genoa, Italy, and had to do with maritime shipping. Today, many professionals sign insurance contracts to protect their business and their assets. Insurance for contractors serves the same purpose.

There are a lot of different types of insurance that protect contractors through the various phases of construction. Read our contractor insurance guide below to learn more.

What Is Insurance for Contractors?

The term “contractor insurance” doesn’t refer to a single, all-encompassing type of protection. Instead, it refers to multiple types of insurance policies that can protect a contractor during projects.

There are several things that can influence what type of insurance you may need. They include your relationship to the project (are you the owner, contractor, or subcontractor?), the type of property covered, and whether you’re buying insurance as a business or an individual.

What Does Contractor Insurance Cover?

Contractor insurance covers a broad number of project-related items. It all depends on the policies you buy. Here are a few types of general contractor insurance to help you get an idea.

Builder’s Risk/Course of Construction

Builder’s risk insurance, also known as Course of Construction (COC) insurance, is coverage for a building while it’s under construction. A builder’s risk policy will generally cover the following:

  • Lawns, trees, and other plants
  • Foundations
  • Building Materials
  • Outdoor fixtures
  • Paving
  • Fencing

A contractor insurance company will usually cover projects that include new residential construction, commercial property construction, residential remodeling (or smaller projects), and model home construction.

Commercial Contractor Liability Insurance

Sometimes referred to as Commercial General Liability (CGL), is a type of insurance that provides liability protection for a business. If someone gets injured or property gets damaged while you’re doing business, this policy will protect you from unnecessary risk.

CGL provides protection for a wide range of potential issues, as well as damages relating to:

  • Defamation
  • False advertising
  • Faulty workmanship
  • Injury

Often, contractors are required to have at least a minimum amount of liability insurance by certain companies or states.

Commercial Auto or Truck Insurance

Commercial vehicle insurance provides auto insurance to protect vehicles that are used for business. The policy can help you avoid coming out-of-pocket for high vehicle repair costs, lawsuits, and medical expenses.

Commercial Truck Insurance

Commercial truck insurance is a specific type of policy that falls under the commercial vehicle insurance umbrella. It provides coverage for large vehicles, like dump trucks, cement mixers, semi-trucks, and others.

Worker’s Compensation Insurance

If your business employs more than just you, you’re going to need worker’s compensation insurance. These policies protect you in the event that one of your employees is injured on the job.

Worker’s comp covers many potential costs, including lost wages, medical bills, legal fees, and more. It’s often required by state law, but even in places where it isn’t, it’s a must-have.

Injuries occur in the workplace all the time, and contractors often deal with dangerous situations. A robust worker’s compensation policy can protect you from paying hundreds of thousands of dollars in medical bills if one of your employees is injured.

Inland Marine Insurance

Inland marine insurance began as coverage for ocean-bound materials and vessels. It has evolved over the years to cover quite a few other types of property. Mobile equipment, property in transit, property in the custody of a storage facility or repairman, and even some electronic equipment.

For contractors specifically, inland marine insurance is usually referred to as “tool and equipment insurance.” It covers tools like drills, generators, electric saws, hammers, drywall, and more. It also covers large equipment like forklifts and cranes.

As mentioned, some electronic equipment (cell phones, laptops, tablets) can be covered under tool and equipment insurance.

Construction Bonds

Construction bonds serve as a guarantee that the project is going to be completed once it has been taken on. These are not always necessary, but they can be nice to have. Here are a few types of construction bonds and when they can be of benefit.

Bid Bonds

These bonds serve as a guarantee that the bid on a project is serious. Additionally, they guarantee that the contractor can financially support the project.

Performance Bonds

Performance bonds serve to ensure that a contractor will stick to standards. They also guarantee that the contractor will finish the job.

Payment Bonds

Lacking the funds to complete a project can spell doom for a contractor. Payment bonds serve as a guarantee that the contractor can pay any equipment costs, subcontractors, suppliers, or other laborers.

Subdivision Bonds

These are usually used when working with local municipalities, counties, or cities. They ensure that the contractor will do the work in accordance with any local requirements or guidelines.

Maintenance Bonds

Maintenance bonds protect the owner of the project in the event of faulty workmanship or materials. These will usually have a specific period of time after the project is done that they cover.

Is Contractor Insurance Necessary?

The law requires certain types of insurance whether you want them or not. You’re not going to be able to conduct business legally without worker’s comp, for example.

Some of the other types of insurance aren’t required by law. However, construction companies offering contracts will often make insurance a requirement.

If you run a contracting business and generally work with homeowners on small-scale projects, you can usually choose not to opt for insurance. Of course, going without protection can be costly.

When you work with larger organizations, they’ll often require you to have various types of insurance. A lot of times, big companies, governments, and colleges will pay for the insurance. It will usually be incumbent upon you to find the policies, though.

Do You Need Contractor Insurance?

Contractor insurance provides you with protection in a wide variety of construction-related areas. It can protect your business, your assets, and your employees. Most types of protection aren’t necessary, but you may be required to purchase it by the organization you’re working with.

If you’d like to learn more about how you can protect your business, check out our blog.