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Construction Insurance & Bond

estimatingWe need insurance for a variety of reasons but in many cases insurance is required by law, e.g., construction insurance, which is required on every single construction project. Construction insurance is covers materials, risks, natural disasters, employees and even your own business. However, there are policies that, though not mandatory, do give you necessary protection in case of financial loss.

What Is Builder’s Risk Insurance?

Builder’s risk insurance is coverage that protects a person’s insurable interest in materials, fixtures and equipment being used in the construction. The homeowners need an umbrella of protection in case any parties involved decide to file claims for damages, or to replace materials or property lost or destroyed during building or remodeling. A builder’s risk insurance is a type of property insurance which covers the damage to buildings while they are under construction regardless of who happens to own it at the time of the occurrence (contractor, subcontractor, owner). Usually the owner is providing it, but in this situation the contractor doesn’t have any control over the terms of the policy the owner has bought and the contractor practically accepts whatever the insurer pays as full and final payment for his loss. Most construction insurance policies exclude coverage for damage caused by the homeowner. The insurance can cost a lot less if the buyer agrees to a really high deductible which is recommended in small constructions where there is less risk of loss. Builder risk policies are in force for the period of 1 year or upon completion of the building but if the building is still under construction at the end of the year, another policy will be issued.

What Is Liability Insurance?

Liability insurance protects contractors against injuries, accidents or property damage that may occur on the construction site. The contractor can have workers that can accidentally damage a property by mishandling materials and tools. Having good construction liability insurance protects builders from lawsuits or when they suffer loss from unexpected conditions.

What Is Employer’s Liability Insurance?

It is an insurance policy that protects employers from liabilities arising from disease, fatality, or injury to employees resulting from workplace conditions or practices. It provides the insured with an indemnity if an employee should be injured as a result of his work for the business insured.

What Is Workers’ Compensation Insurance?

Workers’ compensation insurance covers injuries sustained by construction employees during the course of employment and it is required by all states. In Workers’ compensation, it is enough if the worker has sustained an injury because of work or on the work premises. Coverage exists irrespective of who was at fault.  It is different from Employer’s liability, where the worker needs to prove that the injury resulted from the employer’s negligence. The employee or family member (or dependent) needs to prove that a duty was owned to them and that it was breached; an injury occurred and the breach was the closest cause for the occurrence.

What Is Professional Liability Insurance or Error and Omissions Insurance (EOI)?

Insurance coverage that protects professionals (such as accountants, architects, brokers, consultants, engineers, lawyers, community association Board of Directors) against claims arising from their negligence, errors, and mistakes in the performance of service for others.

What Is a Surety Bond?

A surety bond is somewhat like a professional co-signer. The surety company is basically promising the agency requiring the bond that you will follow the rules listed on the bond and will not cause financial harm. The bond is not to protect you; the bond is in place to protect the public from you. If you do not follow the obligations stated on the bond, a claim can be filed on your bond. The surety company will investigate and pay out if they find you at fault. Unlike insurance, if the surety company pays out on the bond, you are obligated to pay the surety company back.

 What Is a Bid Bond?

A bid bond is a type of surety bond that is submitted with a bid proposal to win a contract.  The purpose of the bond is to guarantee that if the principal is awarded the contract, then they will enter into the agreement at the proposed price.  The bid bond is normally a percentage of the bid amount, such as 5%, 10% or 20% and this amount should be listed in the bid specifications.

What Is a Fidelity Bond?

A type of insurance bought by an employer to protect against losses (such as embezzlement or theft by employees) that are not generally covered under normal theft or burglary policies. It may either be a blanket bond (applying to all employees) or for each employee on an individual basis. The insurance company may set certain guidelines to be followed in the insured firm’s hiring practices, and the protection continues only so long as the duties of the covered employees stay the same (unless arranged otherwise). Some businesses such as brokerages, cash carriers, and security firms are required by law to get fidelity bonds.

What Is a Performance Bond?

A performance bond is a type of surety bond that is required once the principal is awarded the contract.  The performance bond protects the owner for when the principal is unable to complete the project the surety company will guarantee the project is finished per the contract specifications.  The performance bond only guarantees that the project will be physically completed per the contract requirements.  The performance bond is normally 100% of the contract amount and the cost of the bond depends on the financial standing of the principal.

What Is a Payment Bond?

A payment bond is a type of surety bond that is required once the principal is awarded the contract.  The payment bond protects the owner for when the principal in unable to pay their vendors and suppliers.  The payment bond guarantees that the project will be completed lien free since all suppliers and vendors will be paid by the surety company if the principal is unable to do so.  The payment bond only guarantees that all bills associated with the project will be paid. The payment bond is normally 100% of the contract amount and the cost of the bond depends on the financial standing of the principal.

Builders, plumbers, electricians, and other tradespersons are also required to give proof of construction liability insurance before bidding on projects, along with a performance bond which certifies to lending institutions that the contractor is financially solvent enough to complete the project without running out of cash. There are a lot of insurances for every type of construction business. Here are the most popular:

  • Alarm Installation
  • Asbestos Abatement Insurance
  • Carpentry & Framing Insurance
  • Chimney Sweeps Insurance
  • Concrete Insurance
  • Concrete Pumping Insurance
  • Demolition Insurance
  • Drywall & Plastering Insurance
  • Electrical Insurance
  • Environmental Insurance
  • Excavation, Grading & Underground Insurance
  • Flooring Insurance
  • General Contractor Insurance
  • Handyman Insurance
  • Home Inspector Insurance
  • Janitorial Insurance
  • Landscaping & Tree Trimming Insurance
  • Masonry Insurance
  • Mining Insurance
  • Painting Insurance
  • Paving Insurance
  • Plumbing Insurance
  • Pool Construction Insurance
  • Roofing Insurance
  • Swimming Pool Maintenance Insurance

What Are the Components of Insurance Policies?

Insurance policies have the following main components:

  • a declaration page usually consisting of a page or two, that includes the name of the insured; the policy period; the designation of coverage; policy limits; deductibles, and a list of accompanying forms and endorsements;
  • definitions of certain key terms;
  • an insuring clause that includes the basic agreement to provide insurance coverage;
  • coverage exclusions and exceptions that limit the coverage provided under the insuring clause;
  • conditions on coverage that place specific duties on the insured

What are the Clauses for a Construction Contract Insurance?

The clauses for a construction contract insurance typically specify:

  • the types of policies that are to be provided;
  • the number of years for which insurance coverage is to be obtained;
  • the insurance policy monetary limits;
  • the form of the policy
  • the hazards that are to be covered what evidence of compliance with these insurance requirements must be supplied.

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One Comment to "Construction Insurance & Bond"

  1. […] very carefully and have made a firm decision to hire that contractor. See also our article about Insurance. Make sure the contractor you hire is all up to date on all the insurances needed. Before you sign […]

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