Insurance for Construction Companies and Contractors
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Workers’ compensation insurance for contractors and construction businesses

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Workers' compensation insurance

Workers’ compensation insurance covers medical costs and lost wages for work-related injuries and illnesses. This policy is required in almost every state for businesses that have employees.

What does workers’ compensation insurance cover for contractors and construction businesses?

In the construction industry, physical labor brings a high risk of injuries that could place a tremendous financial burden on your business. For instance, if a carpenter has an accident with a nail gun, it could lead to hefty medical bills and downtime.

Workers’ compensation insurance can pay for medical expenses and partial missed wages when an employee is injured on the job or develops an occupational illness. Workers’ compensation benefits also cover temporary or permanent disability and death benefits.

Sole proprietors may also decide to buy this policy for financial protection against work injuries, which health insurance might not cover.

Here’s what a workers’ compensation insurance policy covers:

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For injured workers, sole proprietors, or independent contractors

  • Immediate medical care, including emergency room expenses
  • Ongoing medical care, such as physical rehabilitation
  • Partial lost wages while the employee or contractor is unable to work
  • Death benefits to the dependents if an employee dies from a work-related injury
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For business owners

Employer’s liability insurance – typically included in a workers’ comp policy – protects construction businesses when an employee decides to sue a business owner over an injury.

Employer’s liability insurance typically helps cover:

  • Attorney’s fees
  • Court costs
  • Settlements

Even when a lawsuit is without merit, you might still have to pay for an expensive court battle if not properly insured.

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How are workers' compensation insurance costs calculated?

The amount you pay for workers’ compensation insurance is a specific rate based on every $100 of your business’s payroll. Your premium is determined by the type of work done by your employees (classification rate), your experience modification rate (claims history), and your payroll (per $100).

The formula is:
Classification rate x Experience modification rate x (Payroll / 100) = Premium

State laws set workers’ comp requirements for construction and contracting businesses

Every state creates its own workers' compensation laws. For instance, every construction business in Pennsylvania is required to carry workers' comp insurance for its employees, including full-time, part-time, and seasonal workers. Georgia businesses, on the other hand, only need to carry workers' comp when they have three or more employees.

States often have stricter requirements for construction businesses than other types of businesses due to the industry's increased risk of injury. Roofing contractors in particular are usually required to buy workers' compensation insurance, regardless of whether or not they have employees.

Even when independent contractors, sole proprietors, and members of partnerships and limited liability companies qualify for an exemption, they can choose to purchase workers' compensation coverage for the financial protection it offers.

What are monopolistic states for workers' compensation?

In certain states, construction and contracting businesses must purchase workers' compensation insurance through a monopolistic state fund. Those states are:

If you purchase workers' comp insurance through a monopolistic state fund, it may not include employer's liability insurance. However, you can purchase it from a private insurance company to fill this gap in coverage.

How much does contractor workers' comp insurance cost?

Man in construction vest and helmet calculating insurance costs.

Construction companies and contractors pay a median of $275 per month for workers' compensation coverage.

Insurance costs for construction and contracting professionals are based on a few factors, including:

  • Number of employees
  • Type of work performed
  • Payroll
  • Claims history
  • Location

Lower your workers' comp insurance costs with risk management

Construction professionals face high risks due to the physical nature of the work – not to mention the hazards of saws, ladders, and other essential equipment. If an employee suffers an injury, it can lead to a costly workers' compensation claim – and a rise in your premiums.

Luckily, the owners of construction companies can mitigate risks by providing safety training and reducing hazards in the workplace. You can also make sure your workers are equipped with protective gear, such as gloves and goggles. This can lower your rate of workplace injuries, along with your workers' compensation insurance rates.

Other business insurance policies for contractors and construction companies to consider

Workers' compensation coverage provides protection for your employees and to some extent your business, but it doesn't cover property damage, client injury, or company vehicles. Construction small business owners and contractors should also consider:

General liability insurance: This key type of business insurance covers expenses related to client injury and property damage, along with copyright infringement issues.

Business owner's policy: A BOP bundles general liability coverage and commercial property insurance at a discount. It protects against the most common lawsuits and property damage.

Commercial auto insurance: This policy covers vehicles owned by your construction or contracting business. It typically pays for accidents, vehicle theft, and vehicle damage. If you use your personal vehicle for business, you may need hired and non-owned auto insurance.

Contractor’s tools and equipment insurance: A form of inland marine insurance, this policy helps pay for the repair or replacement of a contractor's tools and equipment if they are lost, stolen, or damaged.

Professional liability insurance: This policy, also knowns as errors and omissions (E&O) insurance, covers professional mistakes and oversights, such as a contractor missing a deadline for a project.

Surety bonds: These bonds provide a guarantee that your company will fulfill its contract. Otherwise, it reimburses the client for their loss.

Builder’s risk insurance: Builder's risk insurance can pay for damage done to a structure still under construction, such as fire or vandalism at a construction site.

Get free quotes and compare policies with Insureon

Are you ready to safeguard your construction or contracting business with workers’ compensation or another type of insurance? Insureon helps contractors find insurance from top-rated insurance companies with one easy online application today. Once you find the right policy, you can begin coverage and get a certificate of insurance in less than 24 hours.

Updated: January 5, 2023
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