General Liability Insurance for Contractors- Get the Best Protection.

 

As a contractor, you are exposed to a large number of risks, and the best way of getting protection from these risks is with contractor general liability insurance. While buying the insurance policy, you will need to select the right kind of coverage to limit the financial risks that might arise due to accidents, job site injuries, and equipment. Apart from these, the insurance policy also protects your construction business from the claims involving property damage and bodily injuries. Even in case of any lawsuit, the insurance policy will offer financial assistance for covering the attorney fees and medical expenses. Additionally, since contractors are fully accountable for the injuries or accidents that occur at the construction site, it is essential to have insurance that reduces the liability of your business.

California Contractors Insurance is Important

Having general liability insurance is extremely important in the construction industry because of nature and risks involved in the business. Moreover, regardless of the size of the company, you need to have insurance that will compensate you from the financial risks and liabilities caused due to any accident or damages. The construction business is exposed to many variables and factors that are beyond your control. But an insurance policy will come at your rescue as it offers extra protection from all the risks associated with the construction process. Therefore, you need to look for a specific insurance policy along with coverage that has been customized to the needs and requirements of your construction business. There is different insurance coverage that is used for covering the multiple risks of the different types of contractors. Therefore, you need to select the right kind of coverage for making sure that the claim to any property damage or bodily injuries can be eliminated.

General liability insurance for contractors is the best way of protecting yourself financially, and hence you need to select the policy according to the nature of your business. It is also essential to consider the risk your business is exposed to so that you will get comprehensive risk protection and an insurance policy. Since the contractor’s work is dangerous and physically demanding, buying the right insurance policy is very important for protection against all kinds of risks. The insurance is also used for mitigating the liability risks that are caused due to third party claims. Apart from bodily injury and property damage claims, business liability insurance is also used for covering personal injury claims.

The contractor’s unique risks can be compensated with the help of the insurance policy so that your business will not have to suffer from financial losses. Moreover, as a contractor, you are also exposed to the risk of being held liable or sued for the damages to the third party, and business liability insurance will offer you the highest level of protection.

Many clients prefer hiring contractors with an insurance policy to avoid facing any issues during the construction process. Many states require the contractors to have an insurance policy so that it will be beneficial for the well being of the general public.

What is a Contractor Surety Bond?

Putting up a structure is usually a very expensive project to undertake. It’s for this reason, that as an investor, you have to seek protection against any loss when undertaking such a project. A contractor surety bond, therefore, is a type of construction bond that you use as a project owner to protect yourself against any sort of financial loss just in case the contractor is unable to complete your project or unable to meet the specified standards that have been agreed upon.  A contractor surety bond can also be referred to as a contractor bond.  There are different types of bonds, here is a look at them.

 

Why You Need a Bond

When you want to put up a construction project, you will usually require contractors to submit bids. At the same time, a contractor that is looking for a job will have to put up a contract bond. The contract bond assures the project you, the owner of the project that the work will be done according to the standards that you have agreed upon.

Generally, a construction surety bond involves three stakeholders: the owner of the project, the contractor or he that does the actual construction work and the third party backs the bond. The investor is also called the obligee. The obligee us in most cases a government parastatal that wants a certain project undertaken.

The investor will usually pick on the contractor that has the lowest bid in order to lower the costs of construction. The contractor is also known as the principal. When the principal submits a surety construction bond, he is in a way assuring the obligee that he has the capacity to finish the work as agreed in the contractual document. the obligee is assured that the principal has the financial capabilities to complete the work in the maximum possible quality that can be achieved as agreed.

How the Bond Works

A construction bond is backed by a guarantor, otherwise known as a surety. His work is to guarantee the investor that the work will be done accordingly by the obligee. A surety guarantees the obligee by carrying out the necessary financial evaluations on the principal to ascertain that the principal can actually do the work. Sometimes, a surety may help a contractor that has problems with cash flow. Also, when the contractor abandons the job before completion, a surety has the responsibility to look for another contractor to finish the job.

A surety can provide three types of construction bonds namely: bid bond, performance bond, and payment bond.

Construction surety bonds are almost always a requirement since many things can go wrong in a construction project. A contractor will be mandated to provide a construction bond when undertaking a government project or any public works.

Why Your Construction Company Needs a Performance Bond

A performance bond is a type of contractor bond. Contractor bonds (also known as construction or surety bonds) are bonds which must be paid by the contractor to a project’s investors before starting on a project. They are meant to reassure the project owners that the contractors can complete the project within the deadline and to the specified quality requirements in the agreement.

Given the enormous risk involved with large scale construction work, contract bonds act as a financial safety net from those risks (e.g. contractor declaring bankruptcy)

There are three types of contractor bonds:

  • Bid Bonds – Bid bonds are paid during bidding to ensure that the contractors don’t bail out after being chosen.
  • Performance bonds- This bond protects a project’s investors from poor quality work from the contractors
  • Payment bonds- These are paid by the contractors to ensure investors they can financially support material and labour costs

There are usually three parties involved during contract bond agreements: project investors (obligee), contractor and a surety company. Normally an obligee is a government agency or organization that hires contractors for large scale public infrastructure projects (although more private sector entities are now requesting contractor bonds too).

Surety Companies

A surety company acts as a guarantor for the contractor obtaining the bond. If the contractor defaults on the project (either by performance or payment), the surety company is responsible for compensating the project’s investors. They either must make financial compensation or find other contractors that can complete the project. A surety company evaluates a contractor’s financial and performance history to see how likely they are to adhere to the terms of the contract. Premiums will then be charged accordingly.

A contractor can estimate the cost of the performance bond to be around 1-2% of the contract value (but this obviously depends on the contractor’s credit profile).
Surety companies will usually require the following documents:

  • Copy of the contract
  • Application of surety
  • Minimum 2 years of financial statements from CPA.

Benefits of performance bonds

So, how does using performance bonds benefit you as a contractor? Well, because a surety company will carry out an extensive pre-qualification process analysing your financial and performance history, being able to secure a performance bond is seen as a badge of honor as a contractor. It shows that a contractor is reliable and can complete a construction project within the deadline and to the quality specified. It builds up a reputation for a contractor, helping them secure contractor bonds more easily in the future.

Performance bonds also reassure project investors of the quality of your work, enabling you to build a positive rapport with them from the start.
Only project investors or owners are eligible for payment from a performance bond.