You might think the first puzzle pieces you need to snap together when starting a contracting business are tools, a truck, and a business name. But equally as important as any of those first-phase items is insurance—general liability insurance, to be exact.
Your general liability policy is the safety net you need to protect your company, yourself, your customers, and the general public. We’ll go over the importance of general liability insurance for contractors below, and by the end of this article, you’ll know how important it is for your company’s future.
What is General Liability Insurance for Construction Contractors?
General liability insurance for contractors is an insurance policy that protects against financial losses from third-party claims of property damage, bodily injury, and personal injury related to their business operations. The policy can be used to settle claims, pay legal fees, and cover medical expenses.
That’s a wordy way of saying that general liability is a safety net that protects contractors if they’re sued. It also protects them from having to pay for damages, whether it’s damaging someone’s property, causing an accident, or even accidentally damaging someone’s reputation, in some cases. Without this policy, the contractor or company would have to pay any of the fees a court deemed reasonable from their own accounts.
Most states and local jurisdictions require contractors to carry general liability insurance in order to obtain a license to perform their specific line of work. For instance, a plumber might be required to carry a GL policy with limits of $1,000,000 in order to obtain his or her license. Also, customers might (and should) require contractors to provide proof of their insurance before awarding them a project.
What Does General Liability Insurance Cover?
General liability essentially covers lawsuits and claims involving damages incurred by third parties. This can be bodily injury claims, property damage claims, advertising injury, and other claims of damage or loss.
Bodily Injury
Potentially the most important coverage that general liability insurance provides is protection from bodily injury claims as a result of contracting activities.
For example, let’s say a contractor must run an extension cord across a sidewalk. Someone walking along the sidewalk then slips on the extension cord and falls, breaking their wrist. The contractor’s general liability insurance would cover the medical bills associated with the injury.
Property Damage
Property damage is one of the most common uses of a general liability policy. If the contractor were to damage property through an action occurring during normal business operations, the policy would cover the damage.
An instance of general liability covering property damage could be a contractor whose extension ladder falls from the side of a house and lands on the neighbor’s fence, car, or garage. If any of these items are damaged, the contractor could pay for the damages themselves or encourage the neighbor to file a claim against the contractor’s general liability insurance to cover the damage.
Completed Operations
General liability can also cover contractors against issues related to work they already performed and completed. This is called completed operations coverage, and it can be a business saver and provide peace of mind for the contractor’s clients.
Let’s say that a contractor performed a subfloor reinforcement project in an older home. After the project is completed, a subsequent structural issue occurs and results in some sort of damage. The completed operations coverage a general liability policy offers can protect the contractor from the financial damages associated with the claim.
Advertising Injury
Experts estimate that there are somewhere around 800,000 remodeling businesses in the US. That doesn’t leave a lot of space for unique advertising, and contractors could quickly find themselves infringing on copyrights. Also, in such a competitive marketplace, claims of libel and slander are more common than one might expect.
Luckily, general liability insurance can protect contractors from advertising injury. If a contractor is being sued for copyright infringement or slander, the general liability insurance can cover the legal fees and even the settlement if the court sees fit. For example, say a contractor copyrights their logo and then sues a competing contractor for copyright infringement for the second contractor’s very similar logo. The second contractor can rely on their general liability insurance to protect them against losses.
What Isn’t Covered by General Liability Insurance?
General liability insurance is fairly encompassing, but it doesn’t protect companies against every instance of damage or mistake. Here are a few instances that general liability insurance won’t cover.
Professional Liability
A general liability policy won’t protect the contractor from issues resulting from mistakes. For instance, damages incurred due to errors in design, poor advice, and erred professional judgments would not be covered.
For example, if a contractor installed a support post, but that support post was insufficient to carry the load of the floor above, general liability would not cover the damages incurred if the post fails. To cover these types of issues, contractors would need a policy that explicitly covers errors and omissions.
Worker’s Compensation
General liability insurance doesn’t cover employees’ work-related injuries or illnesses. If an employee was to get injured on the job, for example falling off a ladder, tripping over an air compressor hose, or any other type of injury, the contractor would need their worker’s compensation policy to cover the claim.
Worker’s compensation insurance is generally a legal requirement for most contractors with employees. These policies will pay for medical care and compensate the employee for wages lost while recovering from their injuries.
Commercial Auto Insurance
General liability insurance won’t cover vehicle-related accidents with company-owned vehicles. If a company-owned vehicle gets into a collision with another vehicle or causes property damage, the owner’s commercial vehicle insurance will need to cover the damage. For contractors who frequently use their vehicles for business purposes, commercial vehicle insurance policies are critical.
How Much Does General Liability Insurance Cost for Construction Contractors?
In general, small to medium-sized contractors can expect to pay between $75 to $150 per month for general liability insurance. But, that’s a wide range and several factors impact the cost of a general liability insurance policy. However, it’s important to note that these policies are typically very affordable regardless of the circumstances. Here are a few factors that impact price:
- Business Size: Larger contracting companies will pay more than smaller businesses. A smaller contractor without employees might pay $1,000 annually, whereas a mid-sized contractor would pay more for general liability.
- Number of Employees: The more employees that a company has, the higher its general liability insurance will be because of the greater likelihood of accidents and damages.
- Project (Business) Type: The type of work the contractor performs will play a part in the cost of general liability insurance. Small residential remodel projects are inherently less dangerous than custom new construction home builders. And, electricians and plumbers will typically pay more for GL than a painting contractor, for example.
- History: Contractors with a history of claims against their general liability insurance providers will pay more than those that don’t. Several claims within the last few years could increase the premium by as much as 50%.
How to Choose the Right General Liability Insurance Policy for Your Construction Business
Choosing the best general liability insurance requires more than just heading to your local insurance office. You need to know what to look for in your policy.
First, make sure your coverage assesses your actual needs. A home improvement contractor doesn’t need the same coverage as a commercial contractor. Residential contractors should focus on bodily injury and property damage coverage to protect themselves and their clients from the types of work they perform.
Next, compare your policy limits. This refers to the coverage your provider will pay in the event that someone files a claim against you. Aggregate limits refer to the amount the policy will cover for all events within one year. Per occurrence limits refer to the amount of general liability coverage a policy will provide per claim or incident. Balancing higher limits and affordability is the key here.
Finally, consider your deductibles and premiums. Your premium is the amount you’ll pay per term (typically per year). Your deductible is the amount you’ll pay out of pocket per claim. Higher deductibles will translate to lower premiums, but the contractor should never choose an uncomfortably high deductible in the name of insurance savings.
Compare these factors when shopping for general liability to find the best policy to fit your company’s needs and budget.
Tips for Managing General Liability Insurance
General liability policies are relatively easy to manage, but there are a few things you should do to make sure your policy fits your needs.
Make sure to review your policy annually. You’ll want to review the coverage you have, your limits, and your deductible to ensure that everything still fits your needs and that everything is still accurate from year to year.
Also, it’s important to work with a trusted insurance broker. These folks know exactly what your company needs from a policy and will ensure your coverage is fair but comprehensive. They’ll also help navigate claims and ensure your questions are answered when they arise.
In and of itself, general liability insurance is a form of risk mitigation. But, contractors should also do their best to mitigate the risks associated with their business. For instance, understanding that job site injuries are relatively common, contractors should work to keep their sites safer and provide the training their employees need to identify, understand, and avoid potential hazards. Avoiding claims will help contractors save money on their premiums in the future.
How to Track Your Vendors Liability Coverage
Not only do you need insurance, but so do the contractors you hire. Just as important as other compliance documents like licenses, certifications, and W9s, general liability insurance should be a requirement for anyone working on your project.
Beam makes it easy to track your subcontractors’ general liability insurance and other compliance documents. Contractors can configure their compliance settings to track specific documents and Beam will automatically send emails requesting documentation. Our software will also track the correspondence in real-time to ensure it has the latest data. Subs can easily upload these documents to the system, allowing them to stay in compliance. Any expiring compliance docs will set off alerts, ensuring contractors can prevent non-compliant subs from working on a job site.
If you’re ready to take your general liability and compliance tracking to the next level, contact Beam for a free demo today.
Pricing sources:
General Contractor Insurance Cost - November 2024 | NEXT
Liability Insurance for Cleaning Business | InsurePro
General Contractor Insurance Cost - Get Free Quotes | Insureon
Contractor & Construction Business Insurance Costs: General Liability & More | Insureon