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Contractor Insurance

Contractor liability insurance is an essential protection that general contractors require in case of a lawsuit or similar claim due to damage, injury, or other issues related to a construction or property site during the build.

This type of insurance provides the coverage needed for all sizes and types of construction projects and sites that ensure proper care and control for the contracting company or general contractors. 

The type of insurance for contractors varies based on the type of project, if there are multiple sites, locations, and projects, the management of staff and subcontractors, and general liability risks common with construction sites.

When you decide on the type of coverage that’s best for your project, you must consult a Canadian contractor insurance agent and review the risks and exposure associated with the commercial or residential site.

What Does Private Contractor Insurance Cover?

Various insurance policies protect contractors and their building sites. These policies cover different aspects of the property to protect the owner and general contractor during the building process. 

contractor insurance

Insurance for Tools and Equipment

These assets are vital for the construction project and must be insured against theft, damage, or loss. This insurance policy helps cover the cost of repairing or replacing equipment or tools if they are damaged or lost during the construction project.

The cost is usually subject to a minimal amount, which means any items under a specific cost, such as $1,500 or a bit less, are not included in this coverage. For example, if a set of tools is valued at $3,000 and becomes damaged or stolen, it may be covered under this policy.

Builder’s Risk Insurance

This coverage is also known as construction liability insurance and protects against claims during your project. This insurance is critical when there is significant damage on an expensive site.

At the same time, it’s being built, especially if the general contractor experiences damage to equipment and raw materials. It’s often a requirement for contractors to carry this coverage. 

It’s essential to carefully review all the project details before starting to ensure all construction site areas are covered during the building process.

The insurance policy is customized to ensure all parties are covered, and it’s also essential to confirm who will be paying for the insurance and who is responsible for this policy before any construction begins.

Commercial General Liability Insurance

The most important and common type of insurance coverage is a general commercial liability. This coverage offers liability insurance for contractors and specifically for businesses against claims during a construction project and job site.

This coverage includes protection against third-party property damage, injuries, damage to a client’s home or nearby property, and other liability issues. 

CGL or commercial general liability insurance is vital for protecting all parties involved in the construction project.

Contractors must review and include all employees, subcontractors, and related parties involved in the project to ensure they are included in the insurance policy. Some subcontractors also carry their insurance coverage to ensure they are adequately protected. 

Tenants’ Legal Liability Insurance

This insurance coverage covers any damage or loss to property or rental space used to build the business or property associated with the job site. It’s essential to include any offices, job sites, and related spaces that are indirectly or directly used to develop or build a new site.

Pollution Liability Insurance

The construction industry is well known for its impact on the environment, especially for large-scale projects that use lots of materials and equipment, which can significantly affect nearby properties.

This insurance covers several issues, including clean-up costs during and following a construction project, injuries due to respiratory illnesses caused by environmental factors, property damages, water damage, and the leak of toxic substances or leaks that may impact the air or plumbing and water within the nearby area.

Professional Liability Insurance

While not all general contractors, including holders of small contractor insurance coverage, require professional liability insurance, it’s a good investment for your business.

It’s essential to offer consulting or professional advice as a part of your construction services, especially if some of the information you provide is incorrect or in error, as this coverage can help cover the costs. 

This type of insurance coverage is highly customized to fit the best option for your construction business, as every contracting company is different.

You may need additional coverage or protection for your business, especially for unique or compassionate projects that may impact the environment, workers, subcontractors, and other factors during the building and development phases.

There are various factors to consider when you decide to purchase professional liability insurance coverage, including whether a client may file a complaint or lawsuit, various trades and subcontracting experts for specialized projects, auto insurance for rented or leased vehicles, rented equipment, leased premises and other components that play a role in the construction project.

It’s important to discuss all possible risks and scenarios with an insurance broker so that you can find the right plan for your project.

While more comprehensive policies may cover much more than basic insurance, you may want to consider additional insurance for third parties to mitigate additional risks. It’s also crucial to discuss the types of tools and equipment you’ll have on-site and other details about the project.

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Small Contractor Insurance

Small contractors and businesses also benefit significantly from insurance coverage, primarily if they cover all or most aspects of a project.

In many cases, small companies or contractors handle all or most of the development, including plumbing, electrical work, roofing, and other types of work that require licensed professionals for various aspects of the project.

While a small company may have all the expertise needed to fulfill the development requirements, a few subcontractors or extra staff may be needed for specialized areas.

During a project’s beginning or planning stages, it’s essential to include every detail, including contingency plans, which should also be reviewed for insurance coverage purposes.

When a smaller group of contractors work on a project, there can be more significant challenges, especially if there is an unexpected experience or an emergency where outside support is needed.

A comprehensive assessment of all (or most) scenarios should be considered beforehand so that the right insurance plan can be customized for the construction site. 

The Cost of Contractor Insurance

There is a variance in how much contractor insurance costs, starting around $500 a year for a basic plan to over $1,000 annually or more, based on additional coverage plans.

Other factors to consider include the type of insurer and the risk of the job or construction project, which can increase the costs of premiums and coverage needs. For example, if your project is a highrise, there is significantly more risk than a small house or building that doesn’t require a swing stage or scaffolding. 

If your contracting business includes specialized trades, such as plumbing, remediation specialists, and electrical work, significantly more coverage may be needed, which can increase the annual premium to $2,000 or more.

Other factors can influence how much you can expect to pay for contractor insurance, including the industry of work or project, the type of insurance options you choose, the site location, the number of employees, insurance history, and the type of business operations.

It’s important to compare your options with various insurers and discuss them with an insurance agent to find the best coverage and cost for your contracting business.

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What Isn’t Covered by Contractor Insurance 

The central part of your insurance coverage covers liability for injury, legal claims, and property damage due to a third-party or subcontractor due to errors or negligence when you add other types of insurance coverage, which extends the protection.

However, insurance for contractors doesn’t include everything that can impact your business’s or project’s financial success.

What’s not included in the contractor’s insurance?

Your coverage won’t include financial losses due to the service your company provides, injury or damage to property that occurs intentionally or while driving a vehicle, injuries to employees, or damage to the property or business property, which is instead covered by your property insurance plan.

When you review your insurance policy, it’s essential to review all the exclusions, as they can be specific and limit the level of protection you have. 

Choosing the Amount of Liability Insurance You Need

How much insurance should you choose for your contracting business?

The type of insurance coverage you need depends on the type of industry, your clients (the number of clients and who they are), the value of your contracts, the number of contracts, contractual requirements, and the estimated value of a legal claim. Should one be made against you or your firm. 

There are various levels of coverage, ranging from $1 million to $5 million in coverage. The premiums are calculated annually, but you’ll likely pay the monthly amount, often invoiced or paid through pre-authorized payments.

The amount of coverage determines how much will be paid over twelve months. These payments include approved payments to cover the cost of settlements, defense and legal costs, and judgment awards.

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October 10, 2023
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FAQs about contractor insurance

What is contractor insurance?

Contractor insurance protects businesses, contractors, subcontractors, and employees during a construction project. Various types of coverage provide insurance for liabilities, tools and equipment, damage, delays, and other aspects of the project.

What insurance do contractors need?

Liability insurance is required, and while not all types of coverage are mandatory, it’s important to consider adding more insurance to protect employees, equipment, tools, and property. An insurance broker can assess which types of coverage are ideal for your project for the best protection.

What other factors should I consider when I choose how much contractor liability insurance to have?

In addition to the standard risks, costs, and nature of your contracting firm, you’ll need to consider the type of financial services and advice you’ll need, whether your clients are individuals, large or small companies, and how projects are managed, either all or a portion of the development.

Contractor Insurance made simple

Learn everything about contractor insurance

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