Best Insurance for Specialty Trade Contractors  

What type of insurance coverage is traditionally used by contractors? 

Insurance coverage is paramount to contractors in order to manage the myriad risks associated with construction. Since construction work involves so many risks, insurers should work closely with contractors on each project to account for all potential losses and to help select the appropriate coverage to mitigate them. Five types of insurance coverage that are most traditionally used by contractors are as follows: 

Commercial general liability insurance. Often referred to as commercial general liability insurance, general liability insurance is generally the top choice for insurance coverage that contractors will purchase. While general liability insurance is a great base for coverage, however, it doesn’t offer total liability protection. These types of policies protect against general liability claims resulting from property damage and bodily injury, but can potentially leave significant gaps, depending on the kind of project a contractor is managing. 

Builder’s risk insurance. While a building is under construction, builder’s risk insurance may protect contractors and any named insured parties from certain risks. The buyer of the builder’s risk policy could name the general contractor, the building’s owner, and any subcontractors as insured parties, depending on the project’s contract. In addition to covering equipment on-site and construction materials, most builder’s risk policies will cover the building’s structure. Typically, this type of insurance is written for a specific length of time and expires when the construction is completed or the timeframe is exceeded. In the event of delays, additional coverage can usually be bought. 

Professional liability insurance. Typically thought of as more of a white-collar business insurance coverage, professionally liability insurance can be invaluable for contractors as well. Contractors leave themselves vulnerable to errors and omissions liabilities when they delve into consulting and design work. That risk can, however, be mitigated by adding this type of insurance, also referred to as E&O insurance, to existing coverage. 

Contractor pollution liability insurance. Contractors pollution liability insurance is a contractor-designed policy offering on an occurrence or claims-made basis, providing third- party coverage for property damage, defense and even clean-up, and bodily injury resulting from sudden, accidental, or gradual pollution conditions arising from construction projects.  

Umbrella liability coverage. This type of coverage most benefits contractors operating multiple or larger construction sites, allowing contractors to extend their existing coverage, in case damages exceed their current policy limits.  

How much liability insurance should a contractor have? 

General liability insurance can protect a contractor from the amount they may be obligated to pay in medical payments or damages resulting from property damage, bodily injury, or advertising/personal injury to third parties. If you are a contractor, you should maintain this coverage for your own protection and because, oftentimes, contractors are required to provide proof of this type of coverage before working on a project. 

In California, for instance, the cost of a general liability insurance for a contractor will run from $796-$1,230, and is based on classification, subcontractor costs, payroll, location, and gross receipts. Generally, insurance carriers use different underwriting criteria when determining the premium of a policy. Other underwriting criteria to take into consideration are policy age, credit score, experience, and number of years the insured has not made a claim. There are often additional coverages, fees, deductibles, exclusions, and taxes that, if added, may impact the premium rate.  

The price can also be affected by the policy coverage limits. Contractors often assume there is a big difference in price between a policy with a $1 million versus a $2 million aggregate limit – which is incorrect. Usually, the variance is only roughly $15. To get on the job, most third parties requiring contractors have a general liability policy are looking for a $2 million aggregate coverage limit.  

How do contractors work with insurance companies? 

There are two different ways contractors can start to work with insurance companies: one is through the insurance company itself; the other is to go through the homeowners. To work with insurance companies directly, you will be required to have some experience at least with disaster mitigation. Insurance companies want to feel confident that you have experience and knowledge to handle an insurance claim. That is why, more often than not, in makes more sense to begin working with homeowners, at least until your portfolio is built up.  

What does a builder’s risk policy cover? 

Builders risk insurance policies cover a person’s or organization’s insurable interest in fixtures, materials, and equipment before or after being installed during renovation or construction of a structure or building, in the event that those items are lost or damaged. Builders risk insurance is also known as inland marine coverage or course of construction.  

For residential or commercial builders risk policies, there are many different groups of eligible clients, including: contractors, property owners/homeowners, builders, school districts, retail companies, investment companies/development, and house flippers. Usually, builders risk policies are available for remodelling, installation, or ground-up new construction, each of which is classified as either commercial or residential risk. It should be noted that builders risk insurance is available in different varieties, including location-specific/single-project, blanket policy, reporting form, and blanket installation policy. For example, blanket policies and reporting form can be very complex, while location specific policies can be more straightforward.  

Builders risk will protect construction sites from damage and loss, and while precise limitations and coverages vary between insurance providers, a more comprehensive builders risk policy might offer coverage for vandalism, and even, in some cases, flood, soft costs, earthquake, ordinance and law, windstorm, and extra expense and business income. Damage to temporary structures, construction material, scaffolding, subdivision signs, landscaping, and fencing could also be covered, depending on the policy.  

Do self-employed builders need insurance? 

Yes. Whether you’re working on commercial or residential properties, or are doing new build work or alterations to existing properties, public liability insurance for self-employed builders will cover you against claims by third parties alleging that you have damaged their property or injured them during your work. Even if all of your work is done as a subcontractor, you will need to have public liability insurance. If you are a subcontractor, the main contractor might now allow you on-site until you have proven that you have valid public liability insurance.  

How much does builder’s risk insurance cost? 

The rate of builder’s risk insurance is usually 1-4% of the construction costs. You might pay about $200 per month for smaller construction project, but it can reach a $2,000 average monthly premium for larger projects. Since the cost depends on the value of the covered property, it’s best to talk about rates with your insurance agent or broker.  

What happens if you have no public liability insurance?  

If you are uninsured, there is no legal penalty – you may, however, regret it. You would have to pay a solicitor yourself if someone sues your business and you do not have public liability insurance, and the a settlement could be costly if the claim against you is successful. You may even have to cover the legal fees of the person who is suing you.