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Cowart Insurance Agency Blog

All You Ever Wanted to Know About Insurance

Construction Insurance 101

What is construction insurance?

There are many types of construction insurance (also known as contractor insurance) intended to protect a property developer and other stakeholders throughout the stages of a construction project.

Contractor insurance, which is basically insurance for a construction project, is a wide classification of coverage related to the erection of buildings, roads, bridges, or any other type of structure.

The following is a list of the most common types of contractors insurance and how they protect those involved in the stages of construction.

Builder’s Risk Insurance

Builder’s risk insurance is coverage for buildings and other structures during construction.

This policy should be prioritized even where policies such as commercial property insurance and homeowner’s insurance have been purchased, since the policies do not cover structures under construction.

Builder’s risk insurance covers residential new construction and remodeling projects, commercial property construction, building materials, foundations, scaffolding, fencing, paving, outdoor fixtures, and lawns fitted by the contractor.

In most cases, Builders Risk Insurance covers damages caused by fire, vandalism, and weather, although some construction insurance companies can offer special coverage for unique projects.

Construction Bonds

Construction (contract) bonds are intended to guarantee that a project will be completed if accepted, and if failed, an entity will be made to pay for the damage.

There are several types of construction bonds, including:

  • Bid bonds – which guarantee that bid proposals are serious and that the bidder is capable of undertaking the project.
  • Payment bonds - ensure the builder can provide payments to suppliers, subcontractors, and site workers.
  • Supply bonds - guarantee that suppliers will deliver building materials and other supplies as per the contract.
  • Performance bonds - compel the contractor to follow the quality guidelines set out in the project’s contract.
  • Maintenance (warranty) bonds – protect the project owner from poor workmanship for a period of time after the work is done.

Contractor License Bonds

This agreement – similar to construction insurance policies –  assures that a contractor will obey the rules pertaining to their contractor license.

It is designed to protect members of the public and the people who will work or do business with the contractor.

Contractor license bonds are offered by insurance companies, and the cost usually varies depending on the contractor’s historical track record of income and credit score. The better the track record, the cheaper the bond.

Workman’s Compensation

This type of construction insurance is designed to protect businesses and contractors from liability if their worker is injured while on duty.

It covers medical expenses due to a covered incident, ongoing recovery expenses related to an injury, missed wages, legal fees if the policy holder is taken to court, funeral costs, and death benefits.

General Liability Insurance

Also known as Commercial General Liability Insurance, this type of insurance for construction offers liability protection to businesses in the event of property damage or bodily harm in the course of business.

General liability insurance policies for construction companies usually cover damages relating to defective workmanship and work-related injuries.

Like in other types of construction insurance, general liability insurance outlines certain exclusions to protect insurers from having to cover certain risks.

Construction Equipment Insurance

Also known as tool and equipment insurance, this type of insurance is designed to cover the tools and equipment used by construction professionals, including:

  • Computers and data – desktops, laptops, tablets, and project data.
  • Owner’s equipment – forklifts, cranes, loaders, excavators, etc.
  • Contractor’s tools and equipment – generators, drills, hammers, saws, etc.
  • Leased equipment – leased equipment and tools.

This policy typically covers items at either replacement cost or the fair market value of the stolen or damaged items.

Coverage of this nature usually includes equipment stolen from a construction site and those damaged in a fire or natural disaster at a job site.

Professional Liability Insurance

Also known as errors and omissions (E&O) insurance, this type of coverage offers protection for a business against claims resulting from errors and mistakes that occur during normal business operations.

A good example of E&O coverage is the case of an engineer who miscalculates the structural requirements of a house – causing the owner to make expensive repairs.

The homeowner may sue the engineer for damages caused by his mistakes. In this case, the E&O policy in the engineer’s insurance policy might cover the claim.

However, unlike other policies that cover property damage or bodily injuries suffered in the line of duty, E&O policies only cover financial losses.