Concrete. Electrical. Drywall. Flooring. A construction project involves many moving pieces, and general contractors are the glue that holds it all together.
However, every project comes with potential risks and liabilities. With the right insurance coverage, you can protect your business, employees, and clients from incidents.
In this guide, we’ll cover:
- Why do general contractors need insurance?
- What types of insurance do general contractors need?
- How much does general contractor insurance cost?
- Growing your general contracting business with surety bonds
- Managing risk as a general contractor
- Choosing a risk partner that understands your construction business
Why do general contractors need insurance?
General contractors need insurance because their work involves significant financial, legal, and reputational risks. The right insurance coverage protects your firm from costly accidents, project delays, and professional errors.
For example, construction is one of the most hazardous industries to work in. General contractors can be exposed to a variety of serious safety risks on the job site, such as falls from heights or crushing by heavy equipment. Insurance can help cover medical bills and lost wages resulting from workplace injuries.
Here’s another one: General contractors do their work on a busy job site, often in close quarters with other workers. You could accidentally damage property belonging to the client or another contractor – like a vehicle or equipment. Insurance can help cover repair and replacement costs.
What types of insurance do general contractors need?
General contractors have a lot on the line. Insurance is a critical part of managing the risk associated with large projects, workers with specialized skills, and physically-demanding work environments.
There are many factors that influence your insurance strategy. That’s why we take a consultative approach at POWERS. We need a thorough understanding of your operations, exposures, and goals to recommend the best insurance solutions for you.
Once we’ve done your risk assessment, here are some of the policies we might recommend.
General liability insurance covers claims that your business caused third-party injury or property damage. It helps protect your company from financial losses due to lawsuits or other legal claims stemming from your operations such as a trip and fall, illness, or even personal injury.
When we recommend a general liability policy
Your state or commercial contracts might require you to carry general liability coverage. Even if not required, GL provides fundamental protection for your business. We recommend it for every business that interacts with the public or customers.
Commercial property insurance protects your building and physical property from events like:
- Hail, windstorms, lightning
- Natural disasters
It covers financial losses from property damage, lost income, and other expenses while recovering.
When we recommend commercial property
We recommend commercial property coverage for most businesses that own or rent property, including buildings, equipment, inventory, and supplies.
In most states, businesses with a certain number of employees must carry workers’ compensation. Workers’ comp covers medical bills and lost wages for employees who are injured or become ill on the job.
When we recommend workers’ comp
This no-fault insurance policy protects you and your employees from the financial impact of workplace injuries. Each state has different workers’ comp requirements, but we recommend it for most businesses with employees.
Inland marine insurance provides coverage for equipment and other property while it’s in storage or transit on land. It protects your business from losses due to damage or theft that occurs during transportation, or while you’re storing the equipment at a temporary location like a job site.
When we recommend inland marine
Any business with transportable property, such as construction equipment or goods in transit, should have inland marine.
Commercial auto with HNOA endorsement
Commercial auto insurance covers vehicles used for business purposes. In most states, it’s required for commercial and personal vehicles. In case of an accident, it helps cover the cost of:
- Repairs to your vehicle
- Medical costs
- Damage to property
- Legal expenses if someone sues you
If your employees use their own vehicles for business or deliveries, their personal auto policies might not cover accidents on the job – or may not sufficiently cover your business. A hired and non-owned auto (HNOA) endorsement covers your business for liability-related claims stemming from the use of vehicles not owned by your business.
When we recommend commercial auto and HNOA
We recommend commercial auto for businesses that use vehicles for business purposes, such as deliveries. If employees are using personal vehicles for business, we also recommend the HNOA endorsement.
Builder’s risk insurance covers buildings while they’re under construction or renovation. It protects structures, materials, and equipment against damage or losses due to fire, theft, vandalism, and weather.
When we recommend builder’s risk
Any business that builds or renovates structures, like contractors or developers, should have builder’s risk insurance.
Errors & omissions (professional liability)
Errors and omissions insurance defends your business against claims that mistakes or negligence caused financial harm. It’s essential for businesses that provide professional services. It covers the costs of legal defense, settlements, and judgments.
When we recommend E&O
We recommend E&O insurance for any business that provides professional services. This includes industries like accounting and legal, as well as construction firms providing design or engineering services.
Directors & officers (D&O)
D&O insurance provides coverage for the personal liability of your company’s directors and officers. It covers claims made against them for management errors like breaches of fiduciary duty or lack of corporate governance. This policy helps protect both your company and your officers from lawsuits.
When we recommend D&O
Any business that has directors or officers can benefit from having D&O insurance to protect their personal assets.
Employment practices liability insurance
EPL insurance covers employee claims of wrongful employment practices like discrimination, harassment, or wrongful termination. It covers:
- Legal defense costs
When we recommend EPL
We often recommend EPL insurance for businesses with larger numbers of employees, but any company with employees faces the risk of employment-related claims.
Product liability insurance covers claims that your product caused injury or property damage. It’s a common policy for businesses that manufacture or sell products. It covers costs related to a product liability claim, such as:
- Legal defense
When we recommend product liability
We recommend product liability coverage to any business that manufactures, distributes, or sells physical products.
Pollution liability insurance protects your business from financial losses resulting from environmental contamination. It can cover the costs of cleanup, legal fees, and damages to third parties.
When we recommend pollution liability
We recommend pollution insurance for businesses in industries with potential environmental risks, like construction and waste management.
Cyber insurance covers losses caused by a security failure or data breach. It’s beneficial for any business handling customer data. It covers a range of expenses, like:
- Credit monitoring
- Public relations
- Legal fees
- Regulatory fines
- Business interruption
- Deceptive and fraudulent instruction
When we recommend cyber liability
Nearly every business is exposed to cyber risk. We recommend cyber insurance for any business that uses technology to conduct business or store sensitive information.
Crime insurance covers losses caused by criminal acts like:
These acts could be by your own employees or third parties. It covers the costs of investigations, legal defense, and judgments.
When we recommend crime insurance
We recommend crime insurance to most hospitality businesses as they’re vulnerable to crimes like theft, robbery, and fraud.
Excess liability coverage is for losses that exceed the limits of your other policies. It can help protect your business from the devastating financial impact of a catastrophic loss.
When we recommend excess liability
Excess liability is an extra layer of financial protection for your business. We might recommend it if you are exposed to the risk of serious claims that could quickly exceed your limits.
How much does general contractor insurance cost?
Construction insurance premiums are often higher than those in other industries because of the perceived high level of risk involved. Insurance companies calculate your premiums using several factors:
- Industry and operations
- Years in business
- Claims history
- Risk management practices
Because insurance costs can vary, it’s important to work with a risk manager to find the best solution for your business. General contractors will find the most value from partnering with an independent insurance agent that will help them proactively manage risk for long-term success.
Growing your general contracting business with surety bonds
If you work on government contracts, you’re likely required to have surety bonds. In the construction industry, private contracts also sometimes require bonds. They mitigate risk for your client and enable you to bid on and win larger jobs.
A bond is a three-party contract between you (the principal), your client (the obligee), and the surety provider. If you fail to perform according to the contract terms, the surety will step in to fulfill your obligation.
In this event, the surety provider will expect to be made whole via the indemnity agreement, which is both a corporate and personal guarantee from you to the surety.
The main purpose of bonds is to provide assurance to taxpayers that the projects they’ve paid for will be finished, and the laborers, subcontractors, and suppliers will be paid for their work.
The most common types are:
- Bid bonds protect the obligee if a bidder wins a contract but fails to sign the contract or provide the necessary additional bonds. Bid bonds help screen out unqualified bidders, since a surety will not issue a bond to a contractor it believes can’t fulfill the contract.
- Performance bonds guarantee the completion of a project according to contract terms if the principal fails to fulfill the contract terms.
- Payment bonds ensure that subcontractors and suppliers are paid for labor and materials if the principal fails to make payments.
Bonds vs. insurance for general contractors
The main difference between a bond and insurance is which party is ultimately responsible for financial losses. A surety bond is more like bank credit than an insurance policy. If the surety pays out on a claim, the principal remains liable and must repay the surety.
How contract bonds help grow your construction operation
A bond program gives you the ability to bid on and secure government contracts. Even for a job that doesn’t require bonding, you might be required to secure a bondability letter or bid bond. These are part of the prequalification process and help the project owner weed out unqualified bidders.
Securing bonded contracts boosts your revenue and fuels your growth by:
- Allowing you to bid on larger and more complex projects
- Improving your reputation
- Helping you build the company’s financial strength and generational wealth
Need help applying for a bond or increasing your capacity to win bigger jobs? Our in-house bond experts can perform a balance sheet analysis to help you make the best bonding decisions.
Managing risk as a general contractor: 6 common risks
Construction work involves many risks that can result in bodily injury, financial losses, and legal disputes. Here are some of the top risks and how to mitigate them.
1. Safety hazards for general contractors
Job sites are hazardous. An accident can lead to a variety of negative outcomes, such as employee injuries, property damage, reputational damage, and lower productivity.
To mitigate these risks:
- Carry the proper workers’ compensation and general liability coverage
- Create documented, project-specific safety plans and procedures
- Provide regular safety training to employees
Our in-house safety education experts can help you develop both holistic and project-specific safety programs. We can also conduct training for you.
2. Damage to property and equipment during construction
An incident can damage expensive property and equipment – whether it’s yours or someone else’s. To prevent property damage:
- Ensure you’re covered with commercial property, general liability, inland marine, and builder’s risk insurance
- Monitor equipment with telematics to prevent theft and maintenance issues
- Train employees on equipment Standard Operating Procedures
3. Delays in construction projects
Delays in project construction can lead to additional costs, liquidated damages, and other penalties. To mitigate these risks, develop detailed project plans, provide adequate resources, and manage schedules effectively.
4. Environmental impacts from construction work
Construction work can have environmental impacts like unintended soil erosion or the pollution of nearby water and air with hazardous material.
These harmful impacts can lead to hefty fines for your company and reputational damage. To prevent them, make sure you follow environmental regulations, take steps to minimize your impact on the environment, and consider pollution liability insurance.
5. Legal disputes in construction contracts
Construction projects can lead to legal disputes with clients, subcontractors, or suppliers. Insurance can cover the cost of legal fees and damages awarded in these disputes.
6. Reputation risks for general contractors
Accidents or delays can damage a general contractor’s reputation. The best way to mitigate this risk is to prevent these incidents in the first place with consistent processes and safety policies. Insurance can help offset the costs associated with any incidents that do occur.
Choosing a risk partner that understands your construction business
To protect the business you’ve worked hard to build, insurance alone is not enough. It’s crucial to identify the most critical threats and make strategic decisions that will allow you to grow your business without disruption.
Construction businesses face unique challenges. We’re right there with you – we work in the construction industry too. We just happen to be on the risk management side.
When you partner with POWERS, we’re more than your insurance agency. We’re a true business partner invested in your success. Our philosophy combines:
We put programs in place to help you execute your business plans. It’s all about empowering you to mitigate risk and grow your business. That’s the POWERS Promise.