cost of construction insurance

Unfortunate and unpredictable accidents can take place anytime, anywhere.


Contractors can quickly become responsible for compensation during accidents or unforeseen events. Construction insurance or general contractor insurance shields you from these claims, and if done right it can also create a nice profit instead of being in the negative on a project.


Construction insurance doesn’t discriminate by trade. If you’re going to be on the field, it’s critical for you to understand at least the basics of how it works.



Why is construction insurance important?


Getting construction insurance is essential and cost-effective as it covers the costs that can incur because of property damage or a personal injury (es) during the time of construction. The costs, otherwise, are very high as the work involves huge manpower and money. Also, a construction business is an accident-prone zone with a high-risk factor. The insurance covers workers, tenants, sub-contractors, sole proprietors, business partners, and of course the company owner himself.


What types of insurance are there?


Several construction insurance covers are based on several factors such as the number of employed workers, the company size, and the type of project.


Construction insurance has the following policies covered:

  • Cover on bodily injury or property damage
  • Insurance for construction site which is void in other insurances
  • Cover for an employee on the job site for any illness, injury, or death
  •  (Not insurance but it’s similar) – A surety bond to offer protection on the made investment between the investor and the contractor. It is essential to get contractor’s license in certain states.



General Liability Insurance


What does this cover in construction?


General liability insurance covers your company and you for the expenses of the property damage and 3rd party/worker’s bodily injuries which can result due to operations, products, and services. It includes repair costs, medical bills, and libel and slander coverage. This is essential for obtaining a contractor’s license in the majority of states.


How much does it cost? What are the rates?


The cost of a median premium of general liability insurance for a construction business/contractor is around 70 dollars each month/825 dollars each year.



Worker’s Compensation Insurance


What does this cover in construction?


Worker’s compensation insurance covers the job-related risk of employees and covers their illness, injury, or death coverage during work. It is essential in the majority of states.


It covers:

  • Costs involved in medical diagnosis/treatment of the employee.
  • Around 60 percent of loss of pay if the employee is covered when he/she is unable to work because of incurred injuries in work.


How much does it cost? What are the rates?


Worker’s compensation insurance premium is based on the kind of employees’ work, also known as classification rate, their payroll per 100 dollars, and experience modification rate, also known as, claims history.


It is calculated as:

Premium= Experience modification rate x Classification rate x (Payroll / 100)



Builder’s Risk Insurance


What does this cover in construction?


Builder’s risk insurance is a coverage that includes the costs of damage due to vandalism, fire, on-site equipment, or any tool theft and weather. The insurance is to cover expenses for the damage that is incurred to the site which is under construction. This insurance is meant to cover the aspect that other insurances do not cover and that is damaged or risks when constructing a building and therefore it is also referred to as a course of construction insurance. It covers the majority of the risks that can arise when building/working on another property.


The advantages of this insurance to builders, construction professionals and contractors are primarily in 3 ways and they are:

  • Shielding the construction in progress
  • Guarding construction/building materials
  • Satisfies customer’s requirements


Builder’s risk insurance offers coverage for the following:

  • Structural harm due to weather
  • Harm due to fire
  • Vandalism
  • On-site theft


How much does it cost? What are the rates?


The cost/price of the builder’s risk insurance depends on the structure which includes the price of labor and material. However, it does not include land value. The premium cost of the builder’s risk insurance is about 495 dollars each month or 1,140 dollars each year.


Several small business holders shell out lesser than 1000 dollars each year for builders’ risk insurance. It also is based on the project and generally is between 1-4 percent of the overall finished structure value.


construction insurance




What does this cover in construction?


Although a general contractor is required to possess various kinds of policies that offer such protection as the insurance, a contractor on the construction field project would additionally need to offer construction bonding services. Only then companies would invest in the firm along with the other people.


Many a time, bonding is not correctly and precisely interpreted when it comes to the construction field. This is a cause of concern among many people as this is a primary reason for taking a wrong step. There is a condition that needs to be met by the states before acquiring a contractor’s license. This requirement is to have contractors that are already licensed to possess a construction bond.


The major difference between an insurance policy service and a construction bond is highly neglected by people due to which causes confusion and misinterpretation. They are different from the insurance and do not offer any kind of services similar to the protection offered by an insurance policy.


What are bonds and what role do they have to the investors? Investors are keen on these bonds for only one reason and that reason is protection, which is different from the insurance policy protection service. Insurance policies give you professional liability. Bonds, on the other hand, do not provide that and give you the listed commitment. Investors use them as protection against their investment if there happened to be a failure of the required specifications of the project or the desired performance of the contractor.


Different types of bonds in construction


Investors usually specify the kind of bonds they would like to choose from the contractor. It is situation-dependent.


Some of the common ones are:

  •  It is a bond commonly demanded by investors when a contractor assures that the performance will be up to the mark by fulfilling contractual demands and specifications. It is used by them against the danger of such failure.
  • : It is one of the most on-demand bonds by investors. This bond is also termed as a tender bond and as the name suggests it involves bidding. At the specifications in which the contractor bids, the winning bidder will execute the contract.
  •  It is an assurance that the contractor who submits this bond is responsible for the payment of the undertakers, that is, workers, service givers, material and instrument suppliers, sub-contractors, etc.
  •  As the name already suggests, this bond offers the surety that says that after a specific amount of time taken by the contractor to complete the construction, there will be no damage in design, construction, materials, etc. and its maintenance-guaranteed.
  •  The structural design improvement in agreement to the specifications comes under this bond.
  • It is an identical bond to the performance bond. It assures the proper performance of the contractor. The difference between the two is that the Public Works bond is for state construction projects and schemes.


How much does it cost? What are the rates?


The costs are not uniform throughout the states. The data given below is as per publications:


  •  Additional to the bonds, the contractors also need insurance policies that offer liability. It costs around $12,000 for a general contractor.
  •  It costs about $5,000 to $90,000 for a general contractor.
  •  It is $12,500 for a general surety contractor.





Approximate estimates on the cost of construction insurance can assist general contractors and construction businesses get some idea on the budget and its management. However, to get specific prices, one has to get a quote from an efficient insurance provider. This will determine the premium amounts and their coverage in detail. A thorough review is essential to make the right decision to get construction insurance and from the right insurance company. This is to avoid landing on a cheap cover. A specialist in construction insurance shall save you losing money and also to understand the right cost to get the right insurance which otherwise can land you in huge money claims or compensations that are not affordable solely and without insurance. Therefore, construction insurance is a must for construction businesses as insurance premium costs are comparatively less than a lawsuit or compensation costs to be handled solely. Getting construction insurance is an investment that is valuable and that safeguards employees and the employer himself.


Daniel Quindemil


Founder and Senior Estimator at I AM Builders