Building a Sturdy Business
Construction Insurance: Why You Need It

For many contractors and construction professionals, insurance is just part of doing business. For example, before clients let you work on their property, they may require you to be bonded and have other types of construction insurance first.

A License or Permit Bond guarantees you will adhere to building codes and other regulations while completing your work. Contractor's insurance protects your business from the cost of lawsuits over property damage and bodily injuries. Your client contracts may mandate these coverages so they can seek compensation if they're sued over your work.

If you're new to the world of construction insurance, let this guide act as an introduction. It discusses…

  • Why contractors need General Liability Insurance.
  • What a License / Permit Bond does.
  • When you need subcontractor's insurance.
Contractor's General Liability Insurance: What Does it Cover?

Contractor's General Liability Insurance: What Does it Cover?

Contractor Liability Insurance (or General Liability Insurance) covers the cost of lawsuits over…

  • Damage to a client's home and other property.
  • Non-employee bodily injuries that happen on your work site.
  • Disputes over the quality of your work.

For a contractor, this insurance is one of your most important policies. It can cover everything from a client tripping over an extension cord to a dispute over a leaky roof you installed. General Liability Insurance not only covers your legal defense costs, but it also pays the damages and settlements you owe a client.

Be sure your GL policy has adequate Products and Completed Operations Liability coverage. This is the part of your policy that covers your liability for bodily harm or property damage your work or finished products cause.

For example, say you build a deck for a homeowner, and the structure collapses after a year. If the collapse hurts someone or damages the homeowner's house, you can be sued for damages so long as the quality of your work was the cause. Adequate Products and Completed Operations coverage can pay for the cost of the ensuing lawsuit.

What Is a License / Permit Bond?

What Is a License / Permit Bond?

Depending on your field, you may be legally obligated to carry a License or Permit Bond (in other words, you may be required to be "bonded"). A bond guarantees that your work will comply with federal, state, or municipal laws (e.g., having the license to perform your work in the first place, following safety guidelines and building codes, etc.).

Here's how it works. A License / Permit Bond is an agreement between…

  • You.
  • The client.
  • The insurance company.

Say you don't comply with government guidelines in your work. If that failure causes your client a financial loss, they can collect damages from your insurer. Unlike other insurance policies, you'll have to repay your insurance provider any amount it pays on the claim.

To learn more about License and Permit Bonds, read, "How (and Why) to Get Bonded and Insured as a Contractor."

Do My Subcontractors Need Insurance?

Do My Subcontractors Need Insurance?

If you're in charge of hiring subcontractors, prepare for another insurance obligation. Many construction contracts require that the subcontractors you hire also have insurance.

Say you're a general contractor overseeing a remodeling project. You're gutting a home and outfitting it with the latest amenities. You hire a kitchen subcontractor to install granite countertops, sinks, and new tile. Per your contract with the homeowner, you have to make sure the subcontractor has GL Insurance and a License or Permit Bond.

If the subcontractor doesn't have insurance, you must require them to get it (and check their Certificate of Liability Insurance for proof of coverage). You can also temporarily add them to your GL policy as an "Additional Insured."

To learn more about contractor and subcontractor insurance, read, "Contractors, Subcontractors, and Employees: Why Worker Classification Matters."

Free Quotes on Construction Insurance

Free Quotes on Construction Insurance

To receive free quotes from a contractor insurance specialist, submit an online insurance application.

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