What is contractor insurance & why do you need it?

what is contractors insurance and why do you need it

A Contractors’ insurance policy provides peace of mind for your construction business and designed to protect you from claims made for injury or damage to employees, sub-contractors, members of the public, property damage, projects (also known as contract works), theft of tools, equipment or plant (both owned by you or hired in) and legal disputes.

No matter how professional you are, some things are simply out of your control. Contractor insurance can protect you against the cost of a claim being made against you for compensation.

You can choose to take out separate policies for the different risks you will face or you can add them altogether under one policy. These are also known as Contractors Combined or Contractors All Risks policies and are designed to be a one-stop comprehensive insurance policy that combines lots of different covers under one policy, for one single premium.

You will need contractors’ insurance if you build houses, commercial property, extensions, refurbishments, fitouts and are responsible for an element of the materials on site. You can obtain a project specific contractors’ insurance policy, or you can choose to cover multiple projects under an annual Contractors Combined or Contractors All risk (CAR) insurance policy.

What insurance do you need as a contractor?

As a general rule insurance for a contractor will include:

We’ve put together a handy table here where you can check exactly what works you carry out and what cover or extensions to a policy you will need:

If you use or do this… Then you need this…
New build houses, extensions or responsible for an element of a contract including materials Contract Works
Use valuable tools Tools cover
Leave tools in your van overnight Tools cover to include ‘in van overnight’
Hire in or Own any Plant machinery Plant cover
Employ any staff even if part time, temporary or Labour only subcontractors Employers Liability
Temporary buildings or structures on site e.g. portacabins Temporary Buildings
Digging foundations close to a neighboring property JCT Extension
Carry out any heat works Heat work
Carry out any design work even if you subcontract this or make any amendments during the construction Professional Indemnity
Have a fleet of vehicles in your company name Fleet Insurance
Transport goods or materials Goods in Transit
Have any business equipment or computer Business equipment cover

How does Contractor Insurance Work?

Contractors insurance is designed to be a one-stop comprehensive insurance policy that combines lots of different covers under one policy, for one single premium. Specifically, it combines pubic liability cover, products liability cover, employers liability, contract works (construction projects) including materials, tools, plant, temporary Buildings, business interruption and legal expenses all, under one policy providing a simple solution for the protection of your business.

Why do I need Contractors Insurance?

Having contractors’ insurance vs not having contractors insurance could mean the difference between your business and livelihood failing. If negligence is proven against you for injury to an employee, sub-contractor or member of the public, the financial implications could cripple you. The policy provides financial protection covering legal costs and awarded costs to the employee or member of the public. Injury claim costs typically start from a reserve of £10,000 for a minor injury and increase into millions of pounds for severe injuries.

RAMS (Risk and method statements) are vital in mitigating your claims costs and will help greatly with insurers being able to defend you.

If you have any employees or sub-contractors it is a legal requirement that you have employers liability insurance as a minimum.

If you are building a new house or an extension to an existing property, you will require contract works cover to provide protection against fire, flood, storm, malicious damage and theft. Contract works can be purchased as a separate policy or it can be included in a contractors combined for contractors all risk policy.

REAL LIFE CLAIM; We recently handled a claim for a Contractor client where a new build timber frame house was 2 weeks away from practical completion. A burst pipe had occurred on a Friday evening after the contractors had left and was not realised until the Saturday morning and over 12 hours of continuous water had flooded the property causing extensive damage. The contract works insurance covered the rip out, drying out process, replacement of all materials and labour costs to reinstate the property to how it was prior to the burst pipe. The claim amount was over £100,000!

Theft of plant is one of the most common claims we see. This is usually covered within the contractor insurance, in particular diggers, whether it be your own or hired in. This policy will pay the cost to replace the plant item and the continuous hire charges, until the hire company receive payment of their stolen item, this can sometimes take weeks. Without this cover you would be financially liable unless you take out the hire company own insurance.

Exclusions to look out for include, height limit, depth limit, heat work, wood working machinery, work involving timber frame property, property worked upon i.e. a nuclear power station, locations i.e. dockyards or airside at airports. Your broker should always make you aware of such exclusions.

What is contractors all risk insurance (CAR) definition?

Contractors all risk insurance is designed as a comprehensive one stop policy providing protection that you need for the tools of your trade, the plant and equipment you may be using on site, and the materials required to get the job done. It also provides coverage for property damage and third-party injury or damage claims. Damage to property can include improper construction of structures, the damage that happens during a renovation, and damage to temporary work erected on-site.

This type of policy gives you the ability to choose the cover to meet your precise needs and requirements and is designed to cover the gap between exclusions that would otherwise exist if using separate policies.

Which Contractor Insurance Policies Should I Consider?

Depending on your type of construction business, you should consider the following insurance covers as a minimum:

  • Public Liability
  • Products Liability
  • Employers Liability
  • Project / contract works if you are building houses, building extensions or carrying out refurbishments.
  • Hired in Plant, Own Plant and tools, which is covered within the contract works section.

There are then many other extensions you should consider depending on the type of construction your business carries out. Our handy table here can help about “what insurance you need as a contractor“.

Your Insurance Broker should always ask a lot of questions about your business to fully understand the risks you face and what policy you actually require.

Is Contractor Insurance a Legal Requirement?

The only insurance that is a legal requirement is employers liability however it is very unusual to obtain employers liability insurance in isolation. It is common to have Employers liability combined with public liability and products liability to provide ‘liability insurance’, which is just one section of a contractor’s insurance policy.

Why Should you Buy Contractor Insurance?

You should buy Contractors insurance to protect yourself and your business against the costs of claims from employees, sub-contractors or members of the public for injuries resulting from your negligence, to provide coverage against property damage to partially built or new build property & buildings, extensions or major refurbishments of properties & buildings to include theft or damage to material, plant, tools, equipment and other associated items whilst on site.

The financial implication of not having contractors insurance could cause you to close your business, resulting in loss of income, assets, potential CCJ’s or even bankruptcy.

What is the difference between Contractors Insurance and Contractors All Risks?

Insurance covers can vary under contractors insurance and can be split out creating separate insurance policies for each risk, for example, public liability insurance and employers liability insurance can be arranged as one policy and contract works can also be arranged as another separate cover. This means you will have more than one policy and can sometimes complicate a claim or cover can that you need can easily be missed. Professional indemnity is another separate policy, which falls into contractors insurance.

A contractors all risk (CAR) insurance policy or a contractors combined covers everything under one policy (with the exception of professional indemnity). This type of policy is often more cost effective.

How much does contractor insurance cost?

On average, construction industry premiums start from £3,000 and range up to £100,000’s depending on the services you offer and your business requirements.

Most brokers and insurers can offer payment by direct debit if required. You should be wary of exclusions and levels of cover if your premium seems ‘to cheap’.

What is contractors all risk insurance (CAR)?

This is a specialist policy that combines public liability insurance, employers liability insurance, contract works (projects), own equipment, legal cover and hired in plant under one insurance cover. A CAR policy will cover multiple projects at the same providing peace of mind. With one policy number, this means all claims are dealt with by the same insurer, and makes life simple for you. It is often more cost effective than separate policies.

How is your contractors all risk insurance (CAR) cost calculated?

Premiums are calculated using your:

  • Turnover
  • Wages to direct manual employees
  • Payments to labour only sub-contractors
  • Payments to Bona Fide sub-contractors
  • Maximum contract value
  • Hired in plant fee’s
  • Own plant, tools and equipment
  •  Work on timber frame properties
  • % of Heat Work you carry out
  • Wood working machines
  • Maximum Height exceeding 15 meters
  •  Maximum Depth work exceeding 1 meter

All of these factors will have an impact on the rating an insurer applies in relation to the risk.

Do you need an annual contractor’s all risk insurance (CAR) policy or project specific?

An annual policy vs a one of project specific policy;

A project specific policy is beneficial if you have one single project for specific business or entity on the go, for example, you setup a construction business to specifically build a house or plot of houses and will not use that construction business to build after the project has finished. The dates are usually set for the project period, if the project runs over the policy end date an additional premium will be charged to extend the expiry date.

An annual contractor all risk (CAR) policy can be financially beneficial if you have multiple projects / contracts on the go at the same time, as it covers all your contracts under the one policy. The premium is rated on the single highest value contract, not on the total value of all your contracts on the go. You can choose and indemnity period of up to 36 months, the typical range is between 12 months to 24 months. This means the time it would take to re-do the same work in the event of a major claim, for example, if a fire occurred just before practical completion and you had to start over. This means projects/contracts can run over 12 months and the policy will cover you.

How to compare contractors ‘all risk’ insurance (CAR) quotes?

The best way to compare quotes is to seek specialist advice from an insurance professional such as a commercial insurance broker. Trying to decipher various contractor insurance quotes that range in cover, conditions, exclusions and price can be very time consuming, confusing and difficult, which is why speaking to a specialist is the best option so you can continue with your business.

In Summary

If your business is in construction and you want peace of mind to protect your company equipment, hired in equipment, injury to employees, claims made against you from sub-contractors, members of the public and you work on new build houses, extensions or have a contractual responsibility for materials on site, a contractors all risk insurance policy would be ideal for you.

It can be confusing and time consuming looking at the various options available to you, I would highly recommend speaking to a specialist commercial insurance broker like Glowsure, who will go through your requirements, get the cover you need at a competitive price and most importantly hold your hand and take over when it hits the fan (a claim occurs).

Call us now on 01730 239387 for a free review and specialist advice on what insurance covers you need.

Wesley Haynes
Wesley Haynes
Wesley is the Director at Glowsure Insurance Brokers. He's passionate about giving the best customer service he can, and this is at the core of everything at Glowsure.
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