Construction is a big business, and most of the time, construction projects go as planned. However, accidents, injuries, unexpected weather, events, and other issues can disrupt a construction project. Therefore, there are many reasons why you should insure your construction project.
Here are 9 reasons why construction projects should be insured:
- Various aspects of construction require insurance.
- Buildings and structures under construction need protection.
- Construction workers need insurance coverage.
- The bonds need insurance protection.
- Construction machinery needs to be insured.
- You’re legally required to have insurance.
- You need protection against unexpected occurrences.
- Commercial and residential projects need coverage.
- Uncommon construction projects need protection.
Let’s take a deeper look at these nine important reasons that you should insure construction projects.
1. Various Aspects of Construction Require Insurance
Construction is a big industry with a huge range of projects within it. Different types of insurance will cover different aspects of a construction project. So, it’s important to have the proper coverage for your project.
The most common type of construction insurance is general liability, and it’s bought for nearly every construction project. General liability insurance covers unexpected damages, personal injury, and consequential damages. However, it has coverage limits, so other types of insurance often accompany the policy.
Property insurance is also common, whether it’s required or not. Property insurance policies will cover any damage to the buildings and materials throughout the project. The cause of damage can vary but typically include weather, loss of materials, and defective materials or workmanship.
Professional liability is another common insurance purchased for construction projects. This type of insurance will cover delays, injury, and damage that results from poor or defective design. It will also cover the economic impacts of these events, consequential events, damages from poor design and negligence, and any contractual issues that arise.
There are other common and sometimes required types of construction insurance like builders’ risk and auto liability that are also explained in this article. Bonds are also similar to construction project insurance, but the two differ, and this article will also explain the differences.
2. Buildings and Structures Under Construction Need Protection
One of the most important things to protect during a construction project is the building or structures you’re constructing. If anything happens to the structure that affects the project, you’ll want compensation to fix the damage and cover any costs associated with it.
Usually called builders risk insurance, you’ll have coverage for any buildings, structures, and other foundations that are part of the insured project. Other items in this type of insurance policy include materials, temporary structures (like safety areas, scaffolding, work stations), fencing, landscaping that’s part of the project, and other outdoor fixtures that the construction company has added.
If you don’t have some of these items or have similar items that you want to insure, you can usually add them to the policy, but you need to ask your insurance agent and make sure the items are specified.
If your construction project has multiple buildings or unique structures and materials, ensure they’re covered under your policy. In the case of unusual projects, you need to be as specific as possible when creating an insurance policy so that everything is covered should you need to make a claim.
Damages covered under builders’ risk policies usually include fire, weather, and vandalism. If necessary, you can also add other types of damage to your policy, including flooding, earthquakes, wildfires, and others. Damages made by the policyholder or its contractors are generally not covered either.
3. Construction Workers Need Insurance Cover
Another crucial thing to protect during a construction project is your workers. Construction sites can be dangerous places for people to work, and construction site injuries aren’t uncommon.
Workers’ compensation is insurance that covers costs related to injuries to workers while on the job. When an injury occurs on the construction site, the construction company won’t be liable for any expenses that the work incurs due to the injury.
Common costs covered by workers’ compensation include medical bills and wages missed as a result of being injured. Recovery costs for the injury, legal fees if the worker sues the company, and any other costs resulting from the injury are also included in the coverage.
4. The Bonds Need Insurance Protection
Bonds are the different contracts that exist in construction. There are bid bonds that protect your intention to work on the project at a given price. Performance bonds ensure that the project is completed at a high standard of work. Payment bonds ensure that you get paid for the work done on a construction project.
For an explanation of how insurance and bonds differ, watch this YouTube video from AUBuildingScience:
You may hire outside contractors to help complete a construction project. If the contractors don’t complete the work for any reason, you want to be insured against any losses and delays as a result. There are many other types of bonds in the construction industry as well.
While bonds differ from insurance policies, they both protect the project, workers, and companies involved. You need to have bonds and insurance to protect your construction project. Insurance protects in the case of an unexpected event, and bonds protect the project itself to ensure that deadlines and quality standards are met.
If you want to learn more about construction bonds and the three main types of construction bonds: bid bonds, performance bonds, and payment bonds, watch this YouTube video:
5. Construction Machinery Needs To Be Insured
Auto liability is important for construction projects because there are so many trucks that are involved. The construction managers usually have company-supplied trucks. The materials are transported to the site with trucks, and trailers are attached to the trucks that help transport everything to the construction site.
With auto insurance, there are various options you can add to a policy to suit your project’s machinery. Liability coverage will protect anyone on the policy from paying if they cause an accident with company vehicles. Physical damage coverage is for the actual vehicles themselves for any damages caused during an accident.
You can also add coverage for medical expenses related to auto accidents and coverage against accidents that cause damage to vehicles and workers by an uninsured driver.
General auto liability, specifically the physical damage, will cover a wide range of vehicles. General liability will cover your most common construction trucks like pickup trucks, cement trucks, flatbeds, and dump trucks. Trailers are also covered, including utility trailers, bulk trailers, haulers, flatbeds, specialty tank trailers, and refrigerated trailers.
6. You’re Legally Required to Have Insurance
The most common type of insurance that governments require is an auto liability policy. Driving trucks and other vehicles to and from construction sites leaves a lot of opportunities for accidents. Any accidents in construction vehicles can lead to many unexpected costs, especially if your construction worker is at fault.
Having auto liability can decrease the cost of an accident tremendously as the insurance policy will cover medical costs, physical damage to the vehicles, and more. Governments require it because if your worker causes an accident, anyone else involved in the accident will need money to cover their expenses.
Workers’ compensation insurance is also commonly required in many states. There are also minimum coverages that different states require, so you need to make sure you get the proper coverage amount. Otherwise, you may face legal trouble when you need to use your insurance.
Furthermore, sometimes when you enter a construction contract, you and your company may be required to purchase certain insurance types and coverage limits. If you don’t have the required insurance, you can get into many legal issues from the breach of contract.
According to Construction Coverage, the table below lists the most common types of construction insurance and whether or not they’re required.
|Type of Insurance||Does the law require it?|
7. You Need Protection Against Unexpected Occurrences
Natural disasters, theft, and other unexpected events can mess up a construction project. You need insurance to cover your project if these events occur.
With builders’ risk insurance, fire, weather, and vandalism are the three events that are typically covered. However, other unexpected events can occur, like excessive flood damage, earthquakes, or even economic or political events.
Other events not included in basic builders’ risk insurance include theft by employees, weather damage to unprotected materials, mechanical issues, and contract issues. It may seem unconventional to add protection for many of these items to your insurance, but it’s possible if you have any suspicion that they may occur.
If you need to add protection from these events to your insurance policy, you can do so for an additional cost. The cost will depend on the probability of these events, how large the project is, and your location.
You want to make sure that these events are added to your insurance policy before they occur. For example, you won’t be able to add coverage to your policy the day before a hurricane is expected to hit if you’re working on a project in Florida without hurricane, wind, or flooding coverage. You need to be prepared and plan your insurance needs ahead of time.
8. Commercial and Residential Projects Need Coverage
Both commercial and residential construction projects need insurance coverage. While the coverage amounts and insurance costs will vary between the two, the types of insurance for both types of projects are similar.
As explained in section two, builders’ risk insurance will cover residential and commercial projects, including new construction and residential remodeling projects. In addition to builders’ risk, general liability is offered for both residential construction and general commercial construction.
If you’re working in a unique type of construction, residential or commercial, you’ll need to purchase excess insurance to cover your extra, unique circumstances. This insurance will vary, but it’s usually more expensive for commercial projects since they’re larger.
9. Insure Anything Uncommon
If you have any events, buildings, or materials that aren’t common in construction projects, you probably won’t find coverage for them in a general liability policy. However, you can still add them to your insurance policy and keep them protected.
You’ll need to add any special items to general liability policies or other common policies as they can’t be insured independently. The cost of added extra, unique items and circumstances can be expensive, but the insurance cost is worth it if the events do occur.
Costs to endorse will depend on what is being endorsed, what the terms of your basic insurance policy are, how much coverage you need if you need to file a claim, and where your project is located.
Be sure to have your insurance agent include any special endorsements in your policy, so you are covered before they happen. Anything extra cannot be added during or after the damages or event occurs.
Learn More About Construction Project Insurance
The nine reasons to insure your construction projects are just the beginning. You should learn more about construction insurance and why it’s important before you begin your next project. The resources in this section are great for learning more about construction insurance, why you need it, and what kind you need.
- Construction Insurance, Bonding, & Risk Management by Palmer W, et al. Available on Amazon.com, this book will help you understand the different types of construction insurance and decide which ones you need for your construction project. You’ll also learn how to determine your requirements for insurance, find the best insurance rate, and secure bonds for your construction project.
- Risk and Insurance in Construction by Nael G. Bunni. This book has information on the risk involved with construction, some possible events that pose a risk during construction projects, and how to understand construction insurance and law for anyone involved in the construction industry. You can get this from Amazon.com.