Project insurance vs. traditional business insurance: Understanding the differences

Choosing the appropriate insurance coverage can make the difference between being able to take on certain projects and having to turn them down. For example, if a contractor is bidding on a construction project, they’ll likely need to show proof of insurance to be considered. In some cases, this could include proof of project insurance.

What is project insurance?

A project specific insurance policy is typically required for specific industry projects such as construction, engineering, and other large-scale projects where unique risks are involved, and specific insurance coverage is needed to protect businesses from those risks.

Project specific insurance can encompass several different policies designed for handymen and general contractors. These policies are designed to cover short-term projects from the start of the work to the date of completion.

For example, a one-time construction job may require project-specific coverage that includes builder's risk insurance, liability protection, and coverage for subcontractors.

What is traditional business insurance?

Traditional business insurance is the standard coverage and policies that business owners purchase to protect their companies from certain risks. These insurance policies often include:

• General liability insurance: This policy covers basic business risks, such as customer property damage and injuries.


• Business owner's policy (BOP): A BOP combines general liability with commercial property insurance, which can be more cost-effective than if the policies were purchased separately.


• Workers’ compensation insurance: Workers’ comp is required in most states for businesses with employees. It covers work-related bodily injuries and illnesses, related medical expenses, and lost income.


• Professional liability insurance / Errors and omissions (E&O) insurance: This policy covers legal expenses if a client sues over unsatisfactory results, errors, or delayed work.


• Commercial auto insurance: Commercial car insurance covers costs if a business' vehicle is involved in an accident. Most states require this coverage for business-owned vehicles.


• Inland marine insurance: Provides property coverage for business items used in the field. It typically pays for property that has been lost, damaged, or stolen.


• Contractor’s tools and equipment insurance: A type of inland marine coverage, this policy covers the value of a contractor's lost, stolen, or damaged equipment up to a limit of $10,000.

What are the differences between project insurance and traditional business insurance?

Overall, project insurance is focused on covering a specific project or event, while traditional business insurance provides more comprehensive liability coverage over a longer period.

Are project insurance and wrap-up insurance the same?

A wrap-up insurance program is a type of project insurance. It’s also sometimes called a controlled insurance program (CIP).

This type of insurance program typically applies to large-scale construction projects where the general contractor or construction manager provides comprehensive coverage to all subcontractors on the job.

In almost all cases, traditional business insurance will not cover OCIP or CCIP projects. Because of this, subcontractors must purchase into the project insurance.

A key distinction in wrap-up insurance is who sponsors the insurance coverage. When the coverage is obtained by the project owner, it’s called an owner-controlled insurance program (OCIP). When it’s obtained by the general contractor, it’s called a contractor-controlled insurance program (CCIP).

Most small businesses will not have to work with wrap-up insurance unless they take on a large-scale job, work as a subcontractor under an OCIP or CCIP, or obtain a government contract project.

Additionally, the named insured must submit the revenue, payroll, and sub costs from the wrap-up project to their traditional insurance company during their yearly audit.

How project insurance and traditional business insurance can work together

For specific jobs, project insurance can complement your traditional insurance coverage to make sure a one-off project or job is fully protected from risks.

Construction projects typically require traditional insurance like commercial general liability, workers’ compensation, and builder's risk insurance. But in addition to this coverage, project insurance may be necessary to address specific risks or insurance exclusions unique to the project. For instance, environmental contamination and exposures, pollution, and construction defects might be covered by project insurance.

For professional service providers such as consultants, architects, and engineers, professional liability insurance is part of traditional business insurance and can be required by some states, counties, or clients. However, there may be risks specific to individual projects not covered by this policy.

For example, cyber liability risks may apply to the project if you’re handling confidential data, which is susceptible to data breaches. Therefore, project insurance could be complementary to traditional year-round coverage to meet all insurance requirements for the job.

The benefits of having year-round coverage for your business

Traditional business liability insurance policies are almost always the better option for protecting your business and managing risks.

Choosing a continuous business insurance policy is usually less expensive in the long run. And because there aren’t any gaps in your coverage, your business is always protected against third-party claims. Plus, it also won't jeopardize your ability to keep business licenses that require insurance.

Year-round coverage might also be a better, cheaper option if your business is looking to expand your services or build a second construction team.

You should also go with continuous insurance if you store equipment between projects. If you only get project insurance, your business property isn’t covered in between jobs.

Can you pause your business insurance?

Most insurance carriers don’t allow customers to pause their policies and restart them at another point in the future. If you no longer need coverage, the only option is to cancel your policy and purchase a new one when you want coverage again.

However, canceling a business insurance policy can hurt your business in a number of ways. When you cancel an insurance policy, it creates a lapse in your coverage, which can be a red flag to insurance companies.

When you eventually purchase another policy, you can expect to pay more for your coverage than you did in the past. Plus, insurance brokers or agents won't always agree to rewrite coverage. In fact, Shawn Johnson, the assistant director of account management for e-commerce and contractors at Insureon warns: If a carrier’s underwriting guidelines change, your business might not be eligible for insurance coverage with that carrier anymore.

Additionally, canceling your insurance can sometimes lead to a breach of contract with clients, customers, and subcontractors. Any additional insureds on your policy would be notified that the named insured’s coverage has been cancelled, breaking your contractual agreement.

Because of this, we strongly recommend maintaining year-round coverage, which will not only be more cost-effective in the long run but maintain your business reputation with insurance providers.

Find the right coverage for your business with Insureon

Complete Insureon’s easy online application today to get insurance quotes from top-rated U.S. insurance companies. An insurance agent can help you choose the right policy limits and deductible to meet your risk management goals. Once you find the right coverage for your small business, you can begin coverage and get your certificate of insurance in less than 24 hours.