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What Insurance Does a Construction Company Need?

Thursday, October 19, 2023

Running a construction company comes with inherent risks. When every construction site is unique and the equipment and people in play differ from one job to the next, there’s a world of uncertainty and potential for mishaps. It’s crucial to have the right insurance coverage to protect your business from possible financial losses.

In this guide, we will explore the types of construction insurance, delve into the coverage and benefits of each, and provide insights into the costs associated with construction insurance.

Types of Construction Insurance

There are several types of construction insurance to consider. Each offers unique coverage to address the specific risks involved in the construction industry. Here are the most common types of construction insurance and the typical costs of the different policies. Note that in each case, the actual costs associated with coverage for your specific company will vary depending on several factors (detailed below).

A building under construction.

General Liability Insurance

Commercial General Liability (CGL) Insurance is typically required by law. It protects all parties involved in the construction project – including the owner, general contractor, subcontractors, and suppliers – from third-party claims related to accidents, injuries, or property damage that may occur during construction operations. CGL also provides coverage for associated legal expenses.

Typical Cost of General Liability Insurance

On average, small businesses can expect to pay a monthly premium of around $50 to $80 for General Liability Insurance. The actual cost can be lower or higher depending on the specific circumstances of your business or the project and contractual agreements. Generally, construction contracts specify the minimum coverage amounts, the required endorsements, and the duration of the policy. 

Builders Risk Insurance

Builders Risk Insurance is designed to safeguard your company by covering potential damages or losses during construction. This type of insurance protects against risks such as fire, theft, and weather-related incidents, ensuring that your investment is secure.

Typical Cost of Builders Risk Insurance

The premium for Builders Risk Insurance is calculated, in part, as a percentage of the total project value, typically ranging from 1% to 5%. For example, if your construction project has an estimated value of $1 million, the cost of Builders Risk Insurance could fall within the range of $10,000 to $50,000. 

A group of workers wearing hardhats smiling with crossed arms.

Workers’ Compensation Insurance

Accidents and incidents are commonplace in the construction industry just by the nature of the work. Workers’ compensation insurance provides coverage for medical expenses and lost wages to employees who sustain work-related injuries or illnesses. It not only ensures the well-being of your employees, but it also protects your company from potential legal disputes.

Typical Cost of Workers’ Compensation Insurance

The premium for this coverage is calculated as a percentage of your company’s payroll, with rates varying by industry and state. On average, construction companies can expect to pay around $1.25 to $3.50 per $100 of payroll in premiums. 

Commercial Auto Insurance

Construction companies often have a fleet of vehicles for transportation and logistics. Commercial auto insurance provides coverage for damages and liability resulting from accidents involving your vehicles. It ensures that you are protected on the road and helps mitigate potential financial losses.

Typical Cost of Commercial Auto Insurance

The costs associated with Commercial Auto Insurance can vary based on several factors, including the number and type of vehicles, the driving records of employees, the coverage limits, and the specific needs of the construction company. On average, commercial auto insurance for a construction company may range from $1,000 to $3,000 per vehicle per year, although this is just a general estimate. 

Excavator and construction vehicle on a jobsite.

Understanding Construction Insurance Costs

When considering construction insurance, it’s important to understand the factors that influence the cost of coverage. The following elements can impact construction insurance costs:

  • Size of the Construction Company
    The size of your construction company can affect insurance costs. Larger companies with extensive operations may have higher premiums due to increased exposure to risks.
  • Scope of Projects
    The scale and complexity of your construction projects play a role in determining insurance costs. Larger projects with higher values and greater risks may result in higher premiums.
  • Level of Risk
    The level of risk associated with your construction activities is a significant factor in insurance costs. Riskier projects, such as those involving hazardous conditions or intricate architectural designs, may result in higher premiums.
  • Project Location
    The geographic location of your construction projects can impact insurance costs. Areas prone to natural disasters or with higher crime rates may lead to increased premiums.

By working with Independent Insurance Associates, you can assess your specific commercial insurance needs and obtain customized insurance coverage that aligns with your business requirements. Contact our office today!