Understanding Construction Insurance

Before getting involved with a contractor, it is important that you make sure that contractor is insured. However, the statement that a contractor is "insured" is a vague phrase and what really matters is the type of insurance and the language of the policy. Below is a brief primer:

Commercial general liability insurance policy - This is the most common form of business insurance. The principal drawback of this policy is that it does not cover defects in the work performed by the contractor. It can cover damage to an existing structure, however.

Builder's risk policy - This policy covers damage to buildings while they are under construction. It is particularly important to obtain this type of insurance when a new home is being constructed.

Performance Bond - This insures payment if a contractor breaches a contract by not performing work as agreed.

Payment Bond - This insures that a contractor (or subcontractor) will be paid if work is performed as agreed.

Workers' Compensation Insurance - This insures that laborers, carpenters etc. will be compensated in the event they sustain injuries. A warning - calling individual laborers, carpenters, etc. "independent contractors" will not obviate the need for a contractor or subcontractor to obtain worker's compensation insurance that covers them.

If you are unfamiliar with insurance issues, it is very important to consult with an attorney about these issues before entering into a construction project.

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