Building blocks of safety: A comprehensive guide to construction insurance

The construction industry is full of risks: injury, theft, extreme weather, budget overruns, delays, etc. 

Gain peace of mind and financial security by protecting your business with construction insurance. Insurance policies cover a range of potential risks and liabilities – and for some projects, it’s required. There are many types of insurance to safeguard your projects at all stages, and having the correct coverage in place will ensure your business is safe and sound.

What is construction project insurance?

Construction project insurance is a category of insurance coverage designed to protect stakeholders involved in a construction project. It’s also a safety net against potential financial losses. This type of insurance covers general contractors, subcontractors, developers, homeowners and lenders.

The importance of construction project insurance

Securing project insurance is step one to reduce risks and achieve responsible project management. As well as protecting your financial interests, it ensures compliance with legal and contractual obligations.

Construction projects are complex and also vulnerable to accidents, property damage, material damage and more. When businesses opt out of covering themselves with the proper insurance, they risk financial burdens that may lead to project delays, budget overruns, fines and legal disputes.

All of the above will put strain not only on your business, but also on your reputation. Don’t leave yourself exposed to lawsuits for accidents, injuries or property damage – or face the loss of client referrals.

What does construction project insurance cover?

Construction project insurance companies provide coverage to protect against the risks and challenges involved in a construction project. The specific coverage varies based on the project size, complexity, location and stakeholders.

In general, these areas are covered by construction insurance:

Property damage to site

Property insurance protects against damage to the construction site, materials, equipment and structures. It offers financial protection from events like fires, storms, theft or vandalism.

Equipment and tools

Coverage extends to equipment and tools used on the construction job site – providing a shield against damage, theft or loss.

Installation of systems or equipment

Guards against damage or issues during the installation process for systems or equipment.

Expenses associated with injury to workers

Covers medical expenses, rehabilitation and lost wages in the event of worker injuries.

Third-party injuries (neighboring properties or pedestrians)

Supports legal costs associated with injury or property damage to third parties, such as neighbors or pedestrians, due to construction.

Specific types of construction insurance

Project owners, construction contractors and other stakeholders must carefully assess their insurance needs for a project. The next step is to purchase construction business insurance and to customize policies that address the risks associated with your projects. The types of construction insurance vary, but here’s an overview of some typical coverage areas:

Builder’s risk insurance

Builder’s risk insurance covers damage to the construction site, materials and equipment that happens during construction. This service safeguards against fire, theft, vandalism and natural disasters.

General liability insurance

General liability coverage is used when accidents happen on the construction site that end in bodily injury or property damage. It protects against legal expenses and potential settlements.

Professional liability insurance

Professional liability insurance is also known as errors and omissions insurance. This is relevant for design professionals, such as architects and engineers. It covers claims from design errors or omissions that could lead to problems during or after construction.

Workers’ compensation insurance

Workers’ compensation insurance ensures that injured workers receive compensation for medical care and lost wages. This also protects the employer in the event of a work-related injury or illness.

Environmental liability insurance

Environmental damage and pollution liability caused by construction activities is covered under this insurance. It’ll cover potential cleanup costs and legal expenses.

Delay in start-up (DSU) insurance

When projects are delayed beyond the estimated completion date, you’ll need delay in start-up insurance. It covers costs and lost income due to timeline delays.

Contractor’s all risk (CAR) insurance

CAR insurance offers protection against many construction risks, including damage to the site, materials, contractor’s equipment and third-party liability.

Subcontractor default insurance (SDI)

Subcontractor default insurance covers against financial losses caused by subcontractor defaults or failure to complete a job. This insurance safeguards the project against subcontractor-related disruptions. It’s always a good idea to have a subcontractor agreement that sets up clear expectations right away.

When should construction companies get insurance?

Construction companies should get insurance coverage right away to manage risk exposures, meet project requirements, protect financials and have peace of mind that they’re ready to handle unexpected challenges. Insurance is a vital safety net in construction.

To mitigate possible risk

Construction projects involve accidents, property damage, theft, delays and more. Insurance is there to cover the financial impact when things go wrong. Insurance helps builders manage risk and continue working without significant financial setbacks.

When proof of insurance is required

Many clients, contractors and local authorities require construction companies to have specific insurance coverage before they’ll allow projects to begin. You must ensure compliance with legal requirements, but it also establishes trust with homeowners and subcontractors.

To have coverage from the start

Buying insurance coverage at the beginning of a project is crucial for your bottom line. Unforeseen events can happen at any stage of construction, even right at the beginning. Reduce the potential for uncovered losses by having contractor insurance in place before you start your project.

To protect investments

Construction projects involve substantial investments in terms of materials, equipment, labor and time. Protect these investments by providing coverage for property damage, theft or loss. Maintain profitability and control construction cost management by avoiding budget overruns.

For peace of mind

When something goes wrong with your project, construction warranty coverage gives you the protection you need. Construction projects can be complex and stressful endeavors, so be prepared to handle unexpected challenges without putting financial stability at risk. Get the insurance in place, then focus on delivering quality work and meeting project deadlines.

Factors that affect the cost of construction insurance

Navigating how the cost of construction insurance is calculated is no easy job. But it’s also important to make informed decisions about the appropriate amount of coverage for the right price – striking that balance between cost and protection. Here’s a brief overview of each factor that’s considered when determining the premium:

Project size and scope

Larger projects or those involving complex designs may require higher coverage limits, affecting premium rates.

Construction type

The type of project – residential, commercial, industrial – influences the insurance premium because some construction types have a higher risk of claims.

Project duration

Longer durations expose the project to more risks, potentially leading to higher premiums.

Risk assessment

Insurers evaluate risks associated with the project, such as location, environmental factors and historical data. Projects labeled riskier may result in higher insurance costs.

Coverage limits and deductibles

Higher coverage limits and lower deductibles often lead to increased premiums. This is where that balance between coverage and cost comes in.

Experience and safety record

A construction company’s track record in safety and risk management influences insurance costs. Companies with solid safety records might be eligible for lower premiums.

Subcontractor management

Effective subcontractor management can have cost-saving benefits when it comes to your insurance costs. Lower your risks, and save money, by requiring subcontractors to have insurance.

Claims history

A history of frequent or very expensive construction claims can lead to higher premiums. Having fewer claims shows you’re managing risk, and it’ll result in more favorable rates.

Insurance market conditions

Fluctuations in the insurance market – driven by factors such as supply and demand, economic conditions or natural disasters – can influence insurance premiums.

Maximize coverage, minimize risk with Buildertrend insurance options

At Buildertrend, we’re more than just a project management software. We take on the administrative tasks with Schedules, To-Do’s and Daily Logs. But we also cover more complex contractor tasks with features like Change Orders, Estimates and Selections.

Buildertrend’s insurance offerings protect your business from risk and offer a sense of security. Our innovative insurance allows you to stay protected while your business continues to grow and break new ground.

“Builder’s risk insurance for us can typically range from $10,000-$12,000 for the year,” said Juan Nunez, owner of Zenun Custom Homes. “With Buildertrend Insurance Services, we’re saving $3,000-$3,500.”

Buildertrend’s partnership with Assurely means affordable business insurance designed for the specific needs of construction teams. We provide the best pricing on many product options, including builder’s risk, contractor general liability, workers’ compensation, commercial property and more. Payment options include month-to-month, quarterly or annually – and the best part is that you can register and renew right from the Buildertrend app.

Schedule a demo today to see what Buildertrend can do for your business.

Construction project insurance FAQs

Get answers to the most common construction project insurance questions.