Contractor insurance is designed for financially hedging against the risk of substantial loss or damage caused by an unknown factor during construction.
The process of new home building and remodeling increases the likelihood of loss or damage to your financial interest.
Contracting operation activities requires careful assessment of what risk are acceptable and what risk require to be insured.
Only after a closer look can a property owner make that judgment of the needs for different contractor insurance.
The assessment begins with understanding the associated risk with the required tasks connected with each step of the new home building or remodeling process.
The property owner should have an in-depth discussion of the higher risk building processes and procedures.
There are many common risks with many of the processes such as falls from roof or scaffolding work and lifting injuries from improperly moving oversized products.
Understanding your general contractor’s safety plan for mitigating such risk is an essential practice in reducing your risk exposure.
Learn about the different types of contractor insurance during construction in Houston
One of the important measures an owner can effectively do to further insulate themselves from building risk exposure is by understanding and purchasing the appropriate forms of contractor insurance coverage.
It is also important to understand what type of contractor insurance your building contractors should maintain through the duration of the project.
It is also critical to understand that standard homeowner insurance will not cover a major remodeling project or is it sufficient for new home building.
Contractor Insurance Types
Traditionally the best combination of construction risk insurance is a combination of contractor insurance and home property insurance owner provided policies.
Your building contractor should furnish the owner with a contractor insurance certificate that has an endorsement of making the property owner additionally insured.
This will help assure you that you will have a claim interest in any damage to your property that is under coverage.
At a minimum your contractors should have the following insurance coverage’s;
- General Liability Insurance – This coverage generally insures liability from bodily injury and property damage resulting from your contractor’s work efforts to your property. This insurance does not cover the cost of repairs from damages from defective work. General liability insurance also covers personal injury from 3rd party consequentially being hurt while on the property.
- Hired Auto Insurance – Hired auto insurance is coverage for vehicles owned by your contractors’ employees. The employees will usually have private car insurance but if they are using their vehicle in a working role, their private insurance company may not accept a work incident claim on their personal policy. This insurance would assume liability for the claim.
- Workman’s Compensation Insurance – This coverage is required for contractors that are self performing skilled labor firms. If contractors have employees that are not legitimate subcontractors, they are responsible by state law for the medical cost and lost wages associated with a job-related injury. This is a critical point because if an employee who is injured and not properly covered from a job-related injury, the homeowner can be sued and found responsible for the relevant loss expenses.
- Professional Liability Insurance – Is insurance coverage for contractors that do design and building services. It covers the design and contracting errors and omissions that might occur during and after the completed project. Professional liability insurance also covers 3rd party hired by the contractor such as engineers.
Property Owners Insurance Types
A common error on the part of property owners is that they think that if their contractors are insured that they are free of liability or contracting risk.
This could not be any further from the truth. Property owners have an obligation to protect their financial interest by maintaining a homeowner’s policy at all times during ownership.
They should also protect their construction investment during contracting through a builder’s risk policy.
- Homeowners Insurance – If you are having a new home built or a home renovated you want to have homeowners’ insurance. If someone is hurt on the property during construction your homeowner’s policy will protect your interest. In addition to homeowners’ insurance the property owner should also purchase the additional coverage if undertaking a major home renovation or new home building project.
- Builders Risk Insurance – This insurance can be purchased by either contractors or homeowners. It is usually more cost effective for the homeowner to purchase this coverage directly instead of paying the mark-up on this line item.
Builders risk insurance provides protection for the construction projects insurable interest in the materials and equipment used in the contracting or during a remodeling project.
If the contracting project is damaged or sustains a loss during the coverage period, the policy holders’ interest is protected up to the insurable limits.
Cost of Contractor Insurance on the Impact of Your Construction Cost
Construction risk insurance is expensive to purchase for new building and remodeling projects.
The total cumulative project insurance cost can represent as much as 1% – 5% of the completed value of the building project.
This is an essential investment in the protection of your construction projects financial interest.
This is why many contractors bid can be much less expensive than their insured competitor.
If a general contractor is not properly insured their bid proposal is likely to be far less than fully insured contractors.
Without careful examination, a property owner can simply justify such a bid proposal discrepancy as competition instead of potential negligence.
Homeowners Exposure of Under-insured or No Insurance
Although the cost of contractor insurance can be a substantial impact on the total cost of a project, it pales in comparison to experiencing a total uninsured loss of a project.
The cost associated with a law suit from a bodily injury by itself can bankrupt most property owners or contractors.
Policy gaps and being uninsured can also result in a punitive effect to a typical construction budget.
As we have mentioned these gaps in coverage can result from the contractor’s ignorance or neglect.
For this very reason it often pays to do business with an experienced and knowledgeable professional contractor.
Construction risk insurance is one of the least understood and least discussed items when property owners are evaluating qualified contractors.
Although the probabilities of experiencing a catastrophic loss are less the 3% in most cases, the likelihood of some incident increases when a property owner does business with uninsured contractors.
This is largely due to an underlying indifference of an uninsured contractor to the consequences of their actions or neglect may have on your property.
As a property owner it is your responsibility to your financial interest to mitigate known and unknown risk. Understanding your insurable options will achieve that goal.
