The value of an insured item at the time of loss, calculated as the replacement cost minus depreciation for age, wear, and tear.
Why It Matters for Contractors
Understanding ACV helps contractors know how much they’ll actually receive in a claim payout. It often results in lower compensation than full replacement cost, which can affect equipment replacement planning.
Example
A contractor’s five-year-old air compressor is stolen from a job site. The insurer pays the actual cash value, which factors in five years of depreciation—significantly less than the cost of a brand-new unit.
Admitted Carrier
Definition
An insurer licensed by the state and subject to its regulations and protections.
Why It Matters for Contractors
Admitted Carrier is essential for contractors because it protects their financial interests and ensures legal compliance during operations.
Example
An insured contractor uses Admitted Carrier to resolve a specific business risk, ensuring minimal disruption and financial protection.
Additional Insured
Definition
A person or entity added to a policy who receives protection under the insured’s coverage.
Why It Matters for Contractors
Additional Insured is essential for contractors because it protects their financial interests and ensures legal compliance during operations.
Example
A general contractor adds a property developer as an additional insured. When a visitor is injured, the developer is also protected under the policy.
Agent
Definition
A licensed professional or organization that sells and services insurance policies on behalf of an insurance company. Agents may represent one insurer (captive) or multiple (independent).
Why It Matters for Contractors
An agent helps contractors find the most suitable insurance policies for their business needs, ensuring proper coverage, legal compliance, and financial protection.
Example
A roofing contractor contacts an ACI insurance agent to get a quote for general liability and tools insurance. The agent evaluates the contractor’s risks and recommends the best bundled policy options.
Aggregate Limit
Definition
The maximum amount an insurer will pay for all covered losses during a policy term.
Why It Matters for Contractors
Aggregate Limit is essential for contractors because it protects their financial interests and ensures legal compliance during operations.
Example
Over the year, a roofing company files multiple claims for storm-related damage. Once the total payouts hit their aggregate limit, no further claims are paid.
Automobile Insurance
Definition
A type of insurance that provides financial protection against physical damage and liability resulting from vehicle accidents, theft, or other incidents involving company-owned or personal vehicles used for business.
Why It Matters for Contractors
Contractors often rely on vehicles to transport tools, equipment, and personnel. Automobile insurance helps protect the business from costly claims, vehicle repairs, or lawsuits resulting from on-the-job accidents.
Example
A general contractor’s truck is involved in a fender bender while delivering materials to a job site. Automobile insurance covers the repair costs and pays for damages to the other driver’s vehicle.
B
Binder
Definition
A temporary legal agreement that provides proof of insurance coverage before the formal policy is issued. It outlines the basic terms and is typically valid for a short period (e.g., 30 days).
Why It Matters for Contractors
A binder allows contractors to begin work or meet contract requirements immediately while the full policy is being processed, ensuring there are no delays due to paperwork.
Example
A contractor needs proof of liability insurance to start a government project. The insurance agent issues a binder, allowing work to begin while the full policy is finalized.
Bodily Injury
Definition
Any physical injury to a person. The purpose of liability insurance is to cover bodily injury to a third party resulting from the negligent or unintentional acts of an insured.
Why It Matters for Contractors
Contractors work in environments where accidents can happen. If a third party is injured on a job site, bodily injury coverage protects the contractor from costly medical bills, legal fees, or settlements.
Example
A passerby trips over a power cord at a construction site and breaks their arm. The contractor’s general liability insurance covers the medical expenses and potential legal claims related to the bodily injury.
Boiler and Machinery Insurance
Definition
A type of commercial insurance that covers the repair or replacement of damaged mechanical or electrical equipment due to sudden and accidental breakdowns. This includes boilers, HVAC systems, generators, and more.
Why It Matters for Contractors
Contractors who rely on heavy machinery or specialized equipment can face costly delays and repairs when equipment fails. This coverage helps minimize downtime and financial loss by covering repair or replacement costs.
Example
A general contractor’s air compressor suddenly fails due to an internal mechanical issue. Boiler and machinery insurance covers the cost of repair, reducing project delays and unexpected expenses.
Broker
Definition
An insurance professional who represents the buyer (not the insurance company) and helps clients find the best coverage options by comparing policies from multiple insurers.
Why It Matters for Contractors
A broker can help contractors navigate complex insurance needs by offering unbiased advice and sourcing competitive quotes across different providers—ensuring better coverage and pricing.
Example
A contractor looking for general liability, commercial auto, and workers’ comp insurance contacts a broker. The broker gathers quotes from several insurers and helps the contractor choose the most cost-effective bundle.
Builders Risk Insurance
Definition
A specialized type of property insurance that covers buildings and structures under construction, as well as materials, equipment, and supplies on-site, in transit, or temporarily stored elsewhere.
Why It Matters for Contractors
Construction projects face risks like fire, theft, vandalism, or weather damage before completion. Builders risk insurance protects contractors, property owners, and developers from financial loss during construction.
Example
A contractor is building a new retail space when a severe storm damages the unfinished roof and materials on-site. Builders risk insurance helps cover the cost of repairs and replacing the damaged supplies.
Best For:
General contractors, homebuilders, and remodelers.
Burglary
Definition
The unlawful entry into a building or secured area with the intent to commit theft or another crime, typically involving forced entry.
Why It Matters for Contractors
Contractors often store valuable tools, equipment, and materials at job sites or in company vehicles. Burglary coverage helps protect against financial loss due to stolen property.
Example
Overnight, thieves break into a contractor’s locked storage trailer and steal thousands of dollars worth of power tools. Burglary coverage under the contractor’s property insurance helps cover the replacement costs.
Blanket Coverage
Definition
An insurance policy that provides a single limit of coverage across multiple properties, locations, or types of assets, rather than assigning individual limits to each one.
Why It Matters for Contractors
Blanket Coverage is essential for Contractors working across multiple job sites or owning various types of insured equipment can benefit from blanket coverage to simplify their policy and ensure consistent protection across all assets. because it protects their financial interests and ensures legal compliance during operations.
Example
A contractor operates crews at three different construction sites and stores equipment in several warehouses. Blanket coverage provides a single overall policy limit, making it easier to manage and ensuring all locations are protected.
Builder’s Risk Insurance
Definition
A form of property insurance designed to cover buildings and structures while they are under construction or renovation. It also covers materials, supplies, and equipment on-site, in transit, or temporarily stored.
Why It Matters for Contractors
During construction, projects are exposed to risks like fire, theft, vandalism, and weather damage. Builder’s Risk Insurance protects contractors and property owners from financial loss before the project is completed.
Example
A contractor is constructing a new office building when a fire breaks out and damages part of the structure and stored materials. Builder’s Risk Insurance helps cover the cost of repairs and replacement, avoiding major setbacks.
Business Owner’s Policy (BOP)
Definition
A bundled insurance package that combines general liability insurance and commercial property insurance into a single policy, often with additional optional coverages. Designed specifically for small to mid-sized businesses.
Why It Matters for Contractors
A BOP offers a cost-effective and convenient way for contractors to protect both their physical assets (like tools, office space, and equipment) and liability exposures in one policy.
Example
A small general contracting business experiences water damage in its office and a third-party injury on a job site in the same week. The BOP covers both incidents—property damage and liability—under one streamlined policy.
C
Cancellation
Definition
The termination of an insurance policy before its normal expiration date, initiated either by the insurer or the policyholder. Cancellations may be voluntary or due to reasons like non-payment or misrepresentation.
Why It Matters for Contractors
If a contractor’s policy is canceled, they may be left without coverage during ongoing projects—putting their business at risk of financial loss, legal issues, or contract violations.
Example
A contractor forgets to pay their insurance premium by the due date. As a result, the insurer cancels the policy, leaving the contractor uninsured and potentially in breach of project requirements.
Certificate of Insurance (COI)
Definition
A document issued by an insurance company or broker that provides evidence of an active insurance policy, including key details like coverage types, policy limits, effective dates, and named insured.
Why It Matters for Contractors
Many clients and project owners require a COI before allowing work to begin. It serves as proof of insurance, ensuring that the contractor meets contract or regulatory requirements.
Example
A contractor is hired for a commercial renovation but must provide proof of general liability and workers’ comp coverage. They request a COI from their insurance provider to submit to the client before starting the project.
Includes:
Policyholder name, type of coverage, limits, and dates.
Claim
Definition
A formal request made by the policyholder to an insurance company for payment or coverage for a loss or damage covered under the terms of the policy.
Why It Matters for Contractors
When accidents, theft, or damage occur, filing a claim ensures the contractor receives financial assistance to recover losses—keeping projects on track and protecting the business.
Example
A contractor’s tools are stolen from a locked trailer at a job site. The contractor files a claim with their insurance provider, who processes the request and reimburses the value of the stolen equipment.
Claimant
Definition
An individual or entity who files a claim for compensation under an insurance policy. The claimant can be the policyholder or a third party affected by the policyholder’s actions.
Why It Matters for Contractors
Understanding who the claimant is helps clarify liability situations. If someone is injured or experiences property damage related to a contractor’s work, they may become the claimant in a liability claim.
Example
A homeowner sues a contractor after a plumbing installation causes water damage. The homeowner becomes the claimant, filing a claim against the contractor’s general liability insurance for the repair costs.
Collision (Auto)
Definition
A type of auto insurance coverage that pays for damage to your vehicle resulting from a collision with another vehicle or object, regardless of who is at fault.
Why It Matters for Contractors
Contractors who use vehicles for transporting tools, materials, or personnel need collision coverage to avoid out-of-pocket repair costs after an accident, keeping business operations running smoothly.
Example
A contractor’s truck hits a concrete barrier while backing into a job site. Collision coverage helps pay for the damage to the vehicle, even though no other party was involved.
Collision Deductive Waiver
Definition
An optional auto insurance add-on that waives the deductible for collision coverage if the insured vehicle is hit by an uninsured driver and the other party is at fault.
Why It Matters for Contractors
Contractors on the road face risks from other drivers. A collision deductible waiver can save out-of-pocket costs if their work vehicle is hit by an uninsured driver—helping them recover faster without added expenses.
Example
A contractor’s van is rear-ended by an uninsured driver while en route to a job. Because the contractor added a collision deductible waiver, they don’t have to pay the $1,000 deductible to get the van repaired.
Commercial Auto Insurance
Definition
A type of insurance that covers vehicles used for business purposes, including liability, collision, comprehensive, medical payments, and uninsured motorist coverage for company-owned or leased vehicles.
Why It Matters for Contractors
Contractors often use trucks, vans, or fleets to transport tools and crews. Commercial auto insurance protects against accidents, injuries, property damage, and legal costs while on the job.
Example
A contractor’s van collides with another vehicle while delivering materials to a job site. Commercial auto insurance covers the repair costs and medical bills resulting from the accident.
Common Carrier Liability
Definition
A legal obligation placed on businesses (common carriers) that transport goods or people for a fee to take responsibility for loss or damage to cargo or passengers while in transit.
Why It Matters for Contractors
Contractors who hire third-party carriers to transport equipment or materials should understand the carrier’s liability in case of damage or loss. It also helps determine if additional insurance (e.g., cargo insurance) is needed.
Example
A contractor hires a freight company to deliver expensive HVAC units to a job site. During transit, several units are damaged. Common carrier liability requires the freight company to cover the cost—up to the limits of their liability.
Comprehensive (Auto)
Definition
A type of auto insurance coverage that pays for damage to your vehicle caused by events other than collisions—such as theft, vandalism, fire, falling objects, weather, or animal impact.
Why It Matters for Contractors
Contractors often park vehicles at job sites or leave tools and materials inside. Comprehensive coverage protects their vehicles from non-collision-related damage that could interrupt business operations.
Example
A contractor’s work truck is damaged by a hailstorm overnight while parked at a job site. Comprehensive auto insurance helps cover the cost of repairs, minimizing downtime and out-of-pocket expenses.
Comprehensive Glass Insurance
Definition
A type of auto insurance coverage that specifically pays for the repair or replacement of damaged vehicle glass—such as windshields, windows, and mirrors—often without a deductible.
Why It Matters for Contractors
Contractors frequently drive on job sites and construction zones where flying debris or rough conditions can easily damage vehicle glass. This coverage helps avoid costly repairs and minimizes downtime.
Example
A contractor’s windshield is cracked by a rock while driving through a construction area. With comprehensive glass insurance, the windshield is repaired or replaced without the contractor paying out of pocket.
CCIP (Contractor Controlled Insurance Program)
Definition
A centralized insurance program purchased and managed by the general contractor or construction manager that provides coverage—typically general liability and workers’ compensation—for all enrolled subcontractors on a project.
Why It Matters for Contractors
A CCIP can lower insurance costs, reduce gaps in coverage, and streamline claims management. For subcontractors, it ensures they’re covered under a uniform policy, helping projects meet compliance and safety standards.
Example
A general contractor managing a large commercial build opts for a CCIP to cover all subcontractors. When an electrician is injured on-site, the workers’ comp claim is filed under the CCIP policy instead of the subcontractor’s own coverage.
Claims-Made Policy
Definition
A type of insurance policy that provides coverage only if the claim is made during the active policy period—regardless of when the incident actually occurred—provided it happened after the policy’s retroactive date.
Why It Matters for Contractors
Contractors with professional liability or errors & omissions exposure need to know that claims-made policies require active coverage at the time a claim is filed—not just when the incident happened. Missing renewal deadlines can lead to gaps in protection.
Example
A contractor completes a project in 2023 but gets sued in 2025 for a design flaw. If the claims-made policy is still active and the retroactive date covers 2023, the insurer will handle the claim—even though the work was done years earlier.
Collision Damage Waiver (CDW)
Definition
A rental agreement add-on that waives the renter’s financial responsibility for damage to a rental vehicle in the event of a collision or accident, often provided by rental car companies. Technically not insurance, but functions similarly.
Why It Matters for Contractors
Contractors who rent vehicles for out-of-town projects or temporary jobs can avoid costly repair bills by opting for a CDW, especially if their commercial auto policy doesn’t cover rentals.
Example
A contractor rents a truck for a week-long project. While backing up at a job site, they dent the rear bumper. Because they purchased a Collision Damage Waiver, the rental company covers the repair cost with no out-of-pocket expense.
Completed Operations
Definition
A liability coverage that protects contractors from claims of property damage or bodily injury that occur after a project or service has been completed and handed over to the client.
Why It Matters for Contractors
Even after finishing a job, a contractor can be held liable if their work causes harm down the line (e.g., faulty wiring causing a fire). Completed operations coverage helps shield them from post-project claims and lawsuits.
Example
A contractor installs kitchen plumbing in a new home. Months later, a pipe bursts due to faulty installation and floods the space. Completed operations coverage helps cover the cost of repairs and damages caused by the incident.
Contractors Pollution Liability (CPL)
Definition
A specialized insurance policy that provides coverage for third-party claims of bodily injury, property damage, or environmental cleanup costs resulting from pollution conditions caused by a contractor’s operations.
Why It Matters for Contractors
Standard general liability policies often exclude pollution-related incidents. CPL ensures contractors are protected if their work leads to the release of hazardous materials—helping avoid costly lawsuits and remediation expenses.
Example
While excavating a site, a contractor accidentally punctures an underground oil tank, causing a leak. Contractors Pollution Liability covers the cleanup costs and any legal claims from nearby property owners.
Cyber Liability Insurance
Definition
A type of insurance that covers financial losses and legal costs associated with data breaches, cyberattacks, and other technology-related risks, including the theft of sensitive business or client information.
Why It Matters for Contractors
Contractors often store client data, payment information, and project plans digitally. A cyberattack or data breach could lead to major financial and reputational damage—cyber liability insurance helps mitigate those risks.
Example
A contractor’s system is hacked, exposing client contracts and billing information. Cyber liability insurance helps cover notification costs, legal defense, and credit monitoring services for affected clients.
D
Decline
Definition
When an insurance company refuses to offer coverage to an applicant based on factors such as high risk, incomplete information, or failure to meet underwriting guidelines.
Why It Matters for Contractors
Contractors may be declined coverage if they operate in high-risk trades, have prior claims, or lack proper safety protocols. Understanding why a policy is declined helps them address issues and reapply successfully.
Example
A demolition contractor applies for general liability insurance but is declined due to multiple prior claims and inadequate safety documentation. The contractor works with an agent to improve safety protocols and reapply.
Deductible
Definition
The fixed amount a policyholder must pay out of pocket before the insurance company covers the remaining costs of a claim. Deductibles can apply per claim or per policy period, depending on the policy.
Why It Matters for Contractors
Choosing the right deductible impacts premium costs and out-of-pocket expenses during a claim. A higher deductible may lower premiums but increase financial responsibility when accidents happen.
Example
A contractor files a $10,000 claim for stolen tools. With a $1,000 deductible, the insurance company pays $9,000, and the contractor covers the remaining $1,000.
Depreciation
Definition
The reduction in the value of an asset over time due to wear, tear, age, or obsolescence. In insurance, it affects claim payouts when calculating the actual cash value of damaged or stolen property.
Why It Matters for Contractors
When filing a claim, the value of tools or equipment may be reduced based on depreciation, meaning contractors may receive less than the replacement cost unless they have replacement cost coverage.
Example
A contractor’s 5-year-old generator is stolen from a job site. Though it originally cost $5,000, depreciation reduces its value to $2,000—so the insurance payout reflects that lower amount unless full replacement cost coverage is in place.
Declarations Page
Definition
The summary page of an insurance policy that outlines key details such as the insured’s name, policy period, coverage types, limits, deductibles, and premium amount. It serves as a quick reference for what’s covered.
Why It Matters for Contractors
The declarations page helps contractors quickly verify their coverage when submitting bids, signing contracts, or responding to claims—making it an essential document for compliance and job readiness.
Example
A contractor needs to show proof of liability coverage to secure a commercial project. They submit the declarations page from their general liability policy, which clearly outlines the policy limits and coverage period.
E
Endorsement
Definition
The summary page of an insurance policy that outlines key details such as the insured’s name, policy period, coverage types, limits, deductibles, and premium amount. It serves as a quick reference for what’s covered.
Why It Matters for Contractors
The declarations page helps contractors quickly verify their coverage when submitting bids, signing contracts, or responding to claims—making it an essential document for compliance and job readiness.
Example
A contractor needs to show proof of liability coverage to secure a commercial project. They submit the declarations page from their general liability policy, which clearly outlines the policy limits and coverage period.
Exclusion
Definition
A specific condition, circumstance, or type of damage that is not covered by an insurance policy. Exclusions are clearly listed in the policy and define the limits of what the insurer will pay for.
Why It Matters for Contractors
Knowing what is not covered is just as important as knowing what is. Exclusions help contractors understand gaps in their coverage and whether additional policies or endorsements are needed to stay protected.
Example
A contractor’s general liability policy has a pollution exclusion. When a chemical spill occurs on-site, the claim is denied. The contractor later adds Contractors Pollution Liability coverage to address this gap.
Effective Date
Definition
The date on which an insurance policy becomes active and coverage officially begins. From this point forward, any covered incidents may be eligible for claims under the policy.
Why It Matters for Contractors
Contractors need to ensure their insurance is active before beginning work on a job site. The effective date confirms when protection starts—helping them stay compliant with contract and legal requirements.
Example
A contractor schedules their general liability policy to start on July 1. When a job begins on July 3, they’re fully covered because the effective date has already passed.
Expiration Date
Definition
The date on which an insurance policy officially ends unless it is renewed. After this date, coverage is no longer active, and no claims can be filed under that policy.
Why It Matters for Contractors
Missing a policy’s expiration date can leave contractors uninsured and non-compliant with project requirements. Keeping coverage active through timely renewal helps avoid costly coverage gaps.
Example
A contractor forgets to renew their general liability policy, and it expires the day before a job site accident. Because the policy is no longer active, the insurer denies the claim, leaving the contractor liable for damages.
Employment Practices Liability Insurance (EPLI)
Definition
A type of insurance that covers businesses against claims made by employees alleging wrongful employment practices, such as discrimination, harassment, wrongful termination, retaliation, or other workplace-related violations.
Why It Matters for Contractors
As contractors grow their teams, they face increased legal risk from employee disputes. EPLI helps protect the business from costly lawsuits, legal fees, and settlements related to employment issues—even if the claims are groundless.
Example
A former employee sues a contracting firm for wrongful termination and gender discrimination. EPLI helps cover the legal defense costs and any resulting settlement, protecting the company’s finances and reputation.
F
Face Amount
Definition
The dollar amount stated on the front (or “face”) of an insurance policy, representing the maximum benefit or coverage the insurer will pay out under that policy. Common in life and some property insurance policies.
Why It Matters for Contractors
Understanding the face amount helps contractors know the upper limit of what will be paid in the event of a claim. This ensures they carry enough coverage to meet project requirements or protect business assets.
Example
A contractor holds a business life insurance policy with a $500,000 face amount. In the event of the insured owner’s death, this is the total amount the beneficiaries would receive.
Financial Guarantee Insurance
Definition
A type of insurance that guarantees the payment of principal and interest on a debt obligation in the event the borrower or issuer defaults. It is commonly used for bonds, loans, or other financial instruments.
Why It Matters for Contractors
Contractors working on publicly funded or large-scale infrastructure projects may be required to secure bonds backed by financial guarantee insurance to reassure project owners of payment security and risk mitigation.
Example
A contractor is hired to build a municipal facility. The city requires a surety bond backed by financial guarantee insurance to ensure the contractor’s financial obligations will be met even if the project encounters issues or delays.
Fire Insurance
Definition
A type of property insurance that provides coverage for damage or loss caused specifically by fire and smoke. It may be a standalone policy or included as part of a broader property or commercial package policy.
Why It Matters for Contractors
Contractors working with electrical systems, flammable materials, or on unfinished structures face fire risks. Fire insurance protects buildings, equipment, and materials from losses that could severely disrupt operations.
Example
A fire breaks out overnight at a job site, destroying stored lumber and partially built framing. Fire insurance helps cover the cost to replace the materials and repair the damage, allowing the project to continue.
First-Party Claim
Definition
A claim filed by the policyholder directly with their own insurance company for loss or damage to their property, rather than a claim involving a third party.
Why It Matters for Contractors
Contractors may need to file a first-party claim if their tools, equipment, or job site property is damaged or stolen. It ensures direct access to compensation without waiting on third-party liability decisions.
Example
A contractor’s trailer filled with tools is vandalized and burglarized. The contractor files a first-party claim with their own insurer under their commercial property policy to recover the losses.
G
General Liability Insurance
Definition
A foundational business insurance policy that covers third-party bodily injury, property damage, personal injury (like libel or slander), and advertising injury resulting from your business operations.
Why It Matters for Contractors
General liability insurance is essential for contractors to protect against lawsuits, medical costs, or property damage claims that occur on job sites or because of their work. Many clients require it before awarding contracts.
Example
A visitor trips over a contractor’s equipment at a job site and suffers a broken ankle. General liability insurance helps cover the injured party’s medical expenses and any potential legal costs.
Required by:
Most licensing boards, clients, and General Contractors.
Good Driver Discount
Definition
A discount offered by insurance companies to policyholders with a clean driving record—typically no accidents, violations, or claims within a certain time frame (often 3–5 years).
Why It Matters for Contractors
Contractors with company vehicles or fleets can lower their auto insurance premiums significantly by maintaining safe driving records. This helps reduce operating costs and reflects positively on the business.
Example
A contractor and their crew have had no moving violations or accidents for five consecutive years. As a result, the company qualifies for a Good Driver Discount, lowering the cost of their commercial auto policy.
Grace Period
Definition
A set amount of time after a payment due date during which a policyholder can make a premium payment without losing coverage. No claims are typically paid during the grace period unless the premium is paid in full.
Why It Matters for Contractors
Missing a premium payment can happen—especially during busy project cycles. A grace period gives contractors a short buffer to catch up on payments and avoid a lapse in crucial coverage.
Example
A contractor forgets to pay their general liability premium on time. Thanks to a 10-day grace period, they pay within the window and their policy remains active without interruption.
Guaranteed Insurability
Definition
A policy feature—usually in life or disability insurance—that allows the policyholder to purchase additional coverage at specific intervals without undergoing a medical exam or providing further proof of insurability.
Why It Matters for Contractors
Contractors with growing families or businesses may want to increase their coverage over time. Guaranteed insurability allows them to do so—even if their health changes—offering long-term financial protection without requalification.
Example
A contractor purchases a life insurance policy in their 30s with a guaranteed insurability rider. At age 40, after a diabetes diagnosis, they’re still able to increase their coverage without a medical exam.
H
Health Insurance
Definition
A type of insurance that covers medical expenses for illnesses, injuries, preventive care, and sometimes prescriptions. Policies may be purchased individually or provided through an employer-sponsored plan.
Why It Matters for Contractors
Contractors, especially those who are self-employed or run small crews, may not have access to employer-sponsored plans. Health insurance helps protect them and their employees from high out-of-pocket medical costs.
Example
A self-employed general contractor enrolls in a private health insurance plan. When they require surgery after an accident, the plan covers most of the hospital and treatment costs, protecting their personal finances.
Homeowner Insurance
Definition
A type of property insurance that provides financial protection against damage to a home and its contents from risks like fire, theft, vandalism, and natural disasters. It also includes liability coverage for accidents on the property.
Why It Matters for Contractors
Contractors working in residential construction or remodeling should understand homeowner insurance to help clients ensure adequate protection during and after a project. It also affects claims if contractor work leads to damages.
Example
A contractor installs new wiring in a home. Months later, faulty wiring causes a fire. The homeowner’s insurance covers the damages, but the insurer may seek reimbursement from the contractor’s liability policy.
Hired and Non-Owned Auto Insurance (HNOA)
Definition
A type of commercial auto insurance that provides liability coverage for vehicles not owned by the business but used for business purposes—such as employee-owned vehicles or rental cars.
Why It Matters for Contractors
Contractors often rent vehicles or have employees use personal cars for tasks like picking up supplies or visiting job sites. HNOA protects the business from liability if there’s an accident involving those vehicles.
Example
A contractor sends an employee to pick up materials using their personal car. The employee causes an accident on the way back. HNOA coverage helps cover the damages and legal costs, protecting the contractor’s business.
Hold Harmless Agreement
Definition
A type of commercial auto insurance that provides liability coverage for vehicles not owned by the business but used for business purposes—such as employee-owned vehicles or rental cars.
Why It Matters for Contractors
Contractors frequently sign or issue hold harmless agreements in contracts to manage liability. Understanding these clauses is crucial to avoid unknowingly accepting full legal and financial responsibility for accidents or damages.
Example
A subcontractor signs a contract that includes a hold harmless agreement, stating they won’t hold the general contractor liable for injuries to their own workers on-site. If an injury occurs, the subcontractor’s insurance must respond.
I
Incontestable Clause
Definition
A provision in a life or health insurance policy stating that after a certain period (typically two years), the insurer cannot void the policy or deny a claim based on misstatements or omissions made in the application—except in cases of fraud.
Why It Matters for Contractors
For contractors with life or health insurance policies tied to business succession or key person coverage, the incontestable clause provides peace of mind that coverage cannot be easily challenged after the contestability period.
Example
A contractor buys a life insurance policy and mistakenly omits a minor health detail on the application. Three years later, the contractor passes away. Because of the incontestable clause, the insurer must honor the claim.
Inland Marine Insurance
Definition
A type of property insurance that covers tools, equipment, and materials while they are in transit, stored off-site, or temporarily located at job sites—beyond the coverage limits of standard commercial property policies.
Why It Matters for Contractors
Contractors frequently move high-value tools and equipment between job sites. Inland marine insurance ensures protection against theft, loss, or damage during transport or while stored away from the primary business location.
Example
A contractor’s trailer loaded with power tools is stolen overnight from a job site. Inland marine insurance helps cover the replacement costs of the stolen equipment, minimizing disruption to ongoing projects.
Insured
Definition
The individual or business entity covered under an insurance policy. The insured is entitled to benefits and protections as outlined in the policy terms.
Why It Matters for Contractors
Understanding who is listed as the insured helps ensure the correct person or business is protected under the policy. This is especially important when multiple parties are involved in a construction project.
Example
A construction company purchases a general liability policy. The company and its named employees are listed as the insured on the policy, meaning they’re covered for any claims arising from covered work-related incidents.
Insurer
Definition
The insurance company or carrier that underwrites and issues the policy, agreeing to assume financial responsibility for covered risks in exchange for premium payments.
Why It Matters for Contractors
The insurer is the party responsible for paying claims, providing proof of coverage, and supporting risk management. Choosing a reliable insurer ensures timely claims processing and consistent protection.
Example
A contractor files a claim for equipment theft. The insurer—the company that issued the inland marine policy—reviews the claim and issues payment according to the policy terms.
Indemnity
Definition
A legal principle in insurance where the insurer agrees to restore the insured to their financial position before a loss occurred—without allowing profit from the claim. It ensures fair compensation for covered losses.
Why It Matters for Contractors
Indemnity is the foundation of most insurance contracts. It ensures contractors are reimbursed fairly for losses—such as damaged equipment or third-party liability—without receiving more than the actual value lost.
Example
A contractor’s $3,000 generator is stolen from a job site. The insurer pays the actual cash value of the generator, minus depreciation and deductible, as part of the indemnity agreement outlined in the policy.
L
Legal Insurance
Definition
A type of coverage that helps pay for legal expenses, including attorney fees, court costs, and consultations, related to personal or business matters. Often offered as a group benefit or stand-alone policy.
Why It Matters for Contractors
Contractors may face legal challenges like contract disputes, employee issues, or regulatory fines. Legal insurance can reduce out-of-pocket legal costs and provide access to professional legal support when needed.
Example
A subcontractor threatens to sue a general contractor over a payment dispute. The contractor uses their legal insurance to consult with an attorney and respond appropriately, minimizing risk and avoiding costly litigation.
Liability (Auto)
Definition
A type of auto insurance coverage that pays for bodily injury and property damage to others when the insured driver is at fault in an accident. It typically includes both bodily injury liability and property damage liability.
Why It Matters for Contractors
Contractors using vehicles for business purposes must carry auto liability insurance to comply with legal requirements and protect their business from costly lawsuits or claims resulting from at-fault accidents.
Example
A contractor accidentally rear-ends another vehicle while driving a company truck. Auto liability insurance covers the damage to the other vehicle and medical bills for the injured driver—protecting the contractor from paying out-of-pocket.
Life Insurance
Definition
A contract between an individual and an insurance company in which the insurer agrees to pay a designated beneficiary a sum of money (the death benefit) upon the insured’s death, in exchange for regular premium payments.
Why It Matters for Contractors
Life insurance provides financial protection for a contractor’s family, business partners, or employees in the event of their death. It can help cover personal expenses, business debts, and ensure continuity of operations.
Example
A contractor with a growing construction business purchases a life insurance policy. If the contractor unexpectedly passes away, the death benefit helps the family manage personal expenses and allows the business to continue operating during the transition.
Liability Insurance
Definition
A type of insurance that protects the insured from financial loss if they are held legally responsible for causing bodily injury, property damage, or other harm to a third party.
Why It Matters for Contractors
Contractors face daily risks that could result in lawsuits—from job site accidents to property damage. Liability insurance helps cover legal fees, settlements, and judgments, protecting both the contractor and their business assets.
Example
A contractor accidentally damages a client’s driveway while operating heavy machinery. Liability insurance covers the cost of repairing the damage and any legal expenses if the client files a claim.
Limit
Definition
The maximum amount an insurance policy will pay for a covered loss. Limits can apply per claim, per policy period, or for specific types of coverage (e.g., bodily injury, property damage).
Why It Matters for Contractors
Knowing the policy limits helps contractors understand how much protection they have in the event of a claim. Inadequate limits can leave a contractor responsible for damages exceeding the covered amount.
Example
A contractor’s general liability policy has a $1 million per occurrence limit. If a job site accident results in $1.5 million in damages, the contractor may be responsible for the remaining $500,000 unless they carry excess coverage.
Loss Run Report
Definition
A detailed report provided by an insurance company that outlines the claims history of a policyholder, including dates, types of claims, amounts paid, and current status.
Why It Matters for Contractors
Insurance providers use loss run reports to assess a contractor’s risk level when issuing or renewing policies. A clean or well-managed claims history can lead to better rates and smoother underwriting.
Example
A contractor applies for new general liability coverage. The insurer requests a loss run report from the previous carrier to evaluate past claims. The report shows only one minor claim in five years, helping the contractor secure a favorable premium.
Tip:
Keep these reports clean to help lower your premiums.
Loan Value
Definition
The amount of money a policyholder can borrow against the cash value of a permanent life insurance policy. This loan accrues interest and reduces the death benefit if not repaid.
Why It Matters for Contractors
Contractors with whole or universal life insurance can use the policy’s loan value as a source of emergency funding or business capital without undergoing a credit check or formal loan application.
Example
A contractor needs quick funding to purchase materials for a large project. They borrow $20,000 against the loan value of their life insurance policy, planning to repay it once the project is completed and payment is received.
M
Marine Insurance
Definition
A broad category of insurance that covers the transportation of goods over water and related risks. It includes ocean marine insurance for sea transit and inland marine insurance for goods transported over land or stored off-site.
Why It Matters for Contractors
Contractors involved in importing/exporting materials or working on projects involving marine transport or infrastructure (like docks or ports) may need marine insurance to protect cargo and equipment during transit.
Example
A contractor imports specialized construction equipment from overseas. Marine insurance covers the equipment during sea transport, protecting against losses from storms, piracy, or shipping accidents.
Material Misrepresentation
Definition
A false statement or omission of a significant fact on an insurance application that, if known, would have affected the insurer’s decision to issue the policy or the terms of coverage.
Why It Matters for Contractors
Providing accurate information is critical when applying for insurance. A material misrepresentation—intentional or not—can lead to denied claims, policy cancellations, or even legal action against the contractor.
Example
A contractor applies for general liability insurance but fails to disclose past claims. Later, when a new claim is filed, the insurer uncovers the omission and denies coverage due to material misrepresentation.
Medical Payments
Definition
A coverage in liability or auto insurance that pays for medical expenses resulting from an accident, regardless of who is at fault. It typically covers immediate costs like ambulance fees, hospital visits, and minor treatments.
Why It Matters for Contractors
If someone is injured at a contractor’s job site or involved in a work-related auto accident, medical payments coverage can quickly address medical costs without requiring a lawsuit or lengthy claims process.
Example
A visitor trips over a power cord at a construction site and suffers a minor injury. The contractor’s general liability policy includes medical payments coverage, which pays for the visitor’s urgent care visit without legal action.
Miscellaneous Insurance
Definition
A broad category of insurance that covers specific or unique risks not typically included in standard property, liability, or auto policies. It includes niche coverages tailored to specialized industries or activities.
Why It Matters for Contractors
Contractors may encounter uncommon risks—like drone operations, special events, or equipment rentals—that require miscellaneous insurance to ensure proper protection outside of traditional policy categories.
Example
A contractor rents out a crane for a short-term project. Their general liability policy doesn’t cover rental equipment, so they purchase miscellaneous insurance to protect against potential damage or accidents involving the crane.
Misquote
Definition
An inaccurate insurance premium estimate provided due to incorrect information, data entry errors, or assumptions during the quoting process. A misquote can lead to policy adjustments or unexpected costs.
Why It Matters for Contractors
A misquote can disrupt project planning and budgeting if the final premium differs from the original estimate. Contractors should verify all details when requesting quotes to ensure pricing accuracy.
Example
A contractor receives a quote for general liability insurance based on incorrect revenue figures. When the insurer reviews the accurate numbers during underwriting, the final premium is significantly higher due to the initial misquote.
Mortgage Insurance
Definition
A type of insurance that protects a mortgage lender in case the borrower defaults on the loan. It’s often required for borrowers who make a down payment of less than 20% on a home.
Why It Matters for Contractors
Contractors who are building or purchasing property may encounter mortgage insurance as part of the financing process. Understanding this cost helps with budgeting and long-term planning.
Modified Comparative Fault
Definition
A legal doctrine used to determine liability and damages in an accident involving shared fault. Under this rule, a party can recover damages only if they are less than 50% or 51% at fault, depending on the state. Their compensation is reduced by their percentage of fault.
Why It Matters for Contractors
If a contractor is involved in a lawsuit or claim where multiple parties share blame (e.g., site accidents), modified comparative fault can limit liability—but also affect how much they can recover in damages.
Example
A contractor is found to be 40% at fault in a construction accident and sues for $100,000 in damages. Under modified comparative fault, they can still recover $60,000. If they were 51% at fault, they’d receive nothing in most states.
N
Named Insured
Definition
The individual or business entity explicitly listed on an insurance policy as the primary policyholder. The named insured holds the rights and responsibilities under the policy, including the ability to make changes or file claims.
Why It Matters for Contractors
Being listed as the named insured ensures the contractor is the main party protected by the policy. It’s especially important for contract compliance, claims processing, and legal coverage.
Example
A general contractor purchases a general liability policy for a commercial build. Their business name is listed as the named insured, giving them full control over the policy and coverage for their operations.
Named Peril
Definition
A type of insurance coverage that protects against specific risks or causes of loss explicitly listed in the policy. If a loss occurs due to a cause not named, it is not covered.
Why It Matters for Contractors
With named peril coverage, contractors know exactly what risks (e.g., fire, theft, vandalism) are covered. This helps manage expectations, avoid claim denials, and assess if additional coverage is needed.
Example
A contractor’s builder’s risk policy lists fire, wind, and theft as named perils. When rainwater damages stored drywall, the claim is denied because flooding is not a named peril on the policy.
Non-Admitted Carrier
Definition
An insurance company that is not licensed by the state insurance department but is legally allowed to operate in that state under surplus lines regulations. These carriers are not backed by state guaranty funds.
Why It Matters for Contractors
Non-admitted carriers often provide coverage for hard-to-insure or high-risk businesses—like contractors with unique exposures or prior claims—when admitted carriers won’t. However, claims may carry more financial risk since they’re not state-guaranteed.
Example
A roofing contractor with a complex claims history can’t get coverage through traditional (admitted) insurers. Their agent finds a non-admitted carrier willing to underwrite a general liability policy through surplus lines.
Negligence
Definition
The failure to exercise a reasonable standard of care, resulting in damage or injury to another person or property. In insurance, negligence is often the basis for liability claims.
Why It Matters for Contractors
Contractors are responsible for maintaining safe job sites and performing quality work. Claims of negligence—such as failing to follow safety protocols—can lead to lawsuits and financial losses if not properly insured.
Example
A contractor leaves tools scattered across a walkway. A site visitor trips and is injured. The visitor sues the contractor for negligence, and the contractor’s general liability insurance responds to the claim.
O
Occurrence Limit
Definition
The maximum amount an insurance policy will pay for a single claim or incident that occurs during the policy period, regardless of how many people or properties are affected.
Why It Matters for Contractors
Understanding the occurrence limit helps contractors assess whether their coverage is sufficient for high-risk jobs. If damages from a single accident exceed this limit, the contractor may be responsible for the difference.
Example
A scaffolding collapse injures multiple people and damages property. The contractor’s general liability policy has a $1 million occurrence limit, which is the maximum the insurer will pay for that single event—regardless of the total number of claims.
OCIP (Owner Controlled Insurance Program)
Definition
A centralized insurance program purchased and managed by a project owner that provides coverage—typically general liability and workers’ compensation—for all enrolled contractors and subcontractors working on a specific project.
Why It Matters for Contractors
Under an OCIP, contractors do not need to provide their own separate insurance for covered projects. This simplifies compliance, reduces duplicate coverage, and ensures uniform protection across all parties involved.
Example
A developer building a stadium sets up an OCIP to cover all construction firms working on-site. A subcontractor injured during the build is covered under the owner’s program rather than needing their own workers’ comp policy for that project.
Occurrence Policy
Definition
A type of insurance policy that provides coverage for claims arising from incidents that occur during the policy period, regardless of when the claim is actually filed—even if it’s years later.
Why It Matters for Contractors
An occurrence policy offers long-term protection for completed work. Even after the policy ends, contractors remain covered for incidents that happened while the policy was active, helping guard against future lawsuits or claims.
Example
A contractor completes a plumbing installation in 2025 under an occurrence policy. In 2028, a pipe bursts due to improper installation. Even though the policy is no longer active, the insurer covers the claim because the incident occurred during the original policy period.
P
Per-Occurrence Limit
Definition
The maximum amount an insurance policy will pay for a single claim or incident, regardless of how many people or properties are affected.
Why It Matters for Contractors
This limit defines how much protection a contractor has for any one accident. If a single event causes significant damage or injury, the per-occurrence limit determines the payout cap for that event.
Example
A contractor accidentally damages a customer’s building during demolition. The cost of repair is $800,000. The per-occurrence limit is $1 million, so the full cost is covered.
Peril
Definition
A specific risk or cause of loss covered (or excluded) by an insurance policy—such as fire, theft, windstorm, vandalism, or explosion.
Why It Matters for Contractors
Understanding what perils are covered helps contractors identify gaps in protection and choose the right policy type (e.g., named peril vs. all-risk). This is especially important for job sites exposed to weather, theft, or fire.
Example
A fire breaks out at a construction site and damages framing materials. Since fire is a covered peril under the contractor’s builder’s risk policy, the insurance company pays for the loss.
Policy
Definition
A formal written contract between the insured and the insurer that outlines the terms, conditions, coverages, exclusions, limits, and responsibilities of both parties in an insurance agreement.
Why It Matters for Contractors
A contractor’s insurance policy is the legal document that defines what is (and isn’t) covered. Understanding the policy helps avoid coverage gaps, claim denials, and contract compliance issues.
Example
A contractor files a claim for stolen tools, but the insurer refers to the policy and denies coverage because the tools were not stored in a locked container as required by the terms.
Policy Limit
Definition
The maximum amount an insurance company will pay for covered losses under a specific policy. This can be broken down into per-occurrence limits, aggregate limits, or specific sub-limits depending on the policy type.
Why It Matters for Contractors
Knowing your policy limit helps you understand the total financial protection available. If a claim exceeds the limit, the contractor is responsible for the remaining costs—making adequate coverage essential.
Example
A contractor’s general liability policy has a $1 million policy limit. If a job site accident results in $1.5 million in damages, the contractor must pay the remaining $500,000 out of pocket unless they have excess coverage.
Premium
Definition
The amount of money a policyholder pays to an insurance company in exchange for coverage. Premiums can be paid monthly, quarterly, annually, or as a lump sum, depending on the policy terms.
Why It Matters for Contractors
The premium is a key cost of doing business. Understanding what affects premium pricing—such as claim history, business size, and risk exposure—helps contractors budget effectively and compare policies accurately.
Example
A general contractor pays a $6,000 annual premium for general liability insurance. When they add higher-risk services like demolition, their insurer increases the premium to reflect the added exposure.
Premium Financing
Definition
A financial arrangement that allows a policyholder to pay their insurance premium in installments through a third-party lender, rather than paying the full amount upfront to the insurer. The lender pays the insurer, and the policyholder repays the lender over time, often with interest.
Why It Matters for Contractors
Large annual premiums—especially for general liability, workers’ comp, or umbrella policies—can strain a contractor’s cash flow. Premium financing makes coverage more accessible by spreading payments over time.
Example
A contractor owes a $10,000 premium for multiple commercial policies. Instead of paying in full, they use premium financing to make monthly payments over 10 months, preserving working capital for project expenses.
Pro-Rata Cancellation
Definition
A method of canceling an insurance policy in which the insurer refunds the unused portion of the premium without penalty, based on the exact number of days the policy was active.
Why It Matters for Contractors
If a contractor needs to switch insurers or cancel coverage mid-term, pro-rata cancellation ensures they only pay for the time the policy was in force—maximizing cost-efficiency and flexibility.
Example
A contractor cancels a general liability policy halfway through a 12-month term. Under pro-rata cancellation, the insurer refunds 50% of the premium since the coverage was only active for half the year.
Property Damage
Definition
Physical injury to, destruction of, or loss of use of tangible property. Property damage is typically covered under general liability, auto, or property insurance policies.
Why It Matters for Contractors
Contractors frequently work on or around client property. If their work results in accidental damage—such as breaking windows, damaging walls, or harming landscaping—they may be held liable. Insurance coverage for property damage helps cover repair or replacement costs.
Example
A contractor accidentally backs a work truck into a client’s garage, damaging the structure. The contractor’s general liability policy covers the property damage repair costs.
Policyholder
Definition
The individual or business entity that owns an insurance policy and is responsible for paying the premium. The policyholder holds contractual rights under the policy, including the ability to make changes, file claims, and receive notices.
Why It Matters for Contractors
The policyholder is the one legally covered and financially protected by the insurance agreement. For contractors, being listed as the policyholder ensures they have control over their coverage and claims process.
Example
A contracting company purchases a commercial auto policy. The business is listed as the policyholder, meaning it has full authority to update the policy, add drivers, or file accident claims.
Pollution Liability
Definition
A type of insurance that covers claims related to the release, escape, or cleanup of pollutants, including bodily injury, property damage, and environmental remediation costs. Often excluded from standard general liability policies.
Why It Matters for Contractors
Contractors working with hazardous materials, fuel, chemicals, or waste can face serious liability if pollution occurs. Pollution liability insurance fills coverage gaps and protects against costly lawsuits, fines, and cleanup demands.
Example
While working on a fuel tank installation, a contractor accidentally causes a leak that contaminates nearby soil. Pollution liability coverage helps pay for the environmental cleanup and legal claims filed by neighboring property owners.
Premium Audit
Definition
A review conducted by the insurance company at the end of a policy period to verify the accuracy of the estimated exposures (e.g., payroll, revenue, number of employees) used to calculate the initial premium. Adjustments may result in additional charges or refunds.
Why It Matters for Contractors
Many contractor policies—especially for general liability and workers’ compensation—are based on estimated figures. A premium audit ensures those estimates match actual business activity, preventing underpayment or overpayment.
Example
A contractor estimates $500,000 in payroll for the year. After a premium audit, the insurer finds the actual payroll was $650,000. The contractor receives a bill for the difference in premium based on the higher payroll.
Professional Liability Insurance
Definition
A type of insurance that protects businesses and individuals against claims of negligence, errors, or omissions in the professional services they provide. It covers legal defense costs, settlements, and judgments related to professional mistakes.
Why It Matters for Contractors
While general liability covers physical damage and injury, professional liability insurance protects contractors who provide design, consulting, or project management services against claims of faulty advice, design errors, or failure to meet professional standards.
Example
A contractor provides project oversight and construction management for a client. The client sues, alleging delays and cost overruns due to poor planning. Professional liability insurance covers legal costs and any resulting settlement.
Q
Quote
Definition
An estimate provided by an insurance company or agent that outlines the expected premium and coverage details based on the information provided by the applicant. A quote is not a binding contract but a proposal for coverage.
Why It Matters for Contractors
A quote helps contractors compare coverage options, pricing, and limits before committing to a policy. Accurate quotes are essential for budgeting and ensuring proper protection for the type of work being performed.
Example
A general contractor requests a quote for general liability insurance. After reviewing details about the business size, services, and claims history, the insurer offers a quote of $5,200 per year for $1 million in coverage.
R
Replacement Cost Value (RCV)
Definition
The amount it would cost to replace or repair damaged or stolen property with new items of like kind and quality, without deducting for depreciation. RCV coverage provides full reimbursement up to policy limits.
Why It Matters for Contractors
Contractors rely on tools, equipment, and materials that can be expensive to replace. RCV ensures they can recover the full cost of replacement—essential for minimizing downtime and keeping projects on track after a loss.
Example
A contractor’s generator is stolen from a job site. With replacement cost value coverage, the insurer pays for a brand-new generator of the same make and model, not the depreciated value of the old one.
Replacement Value
Definition
The amount required to replace or repair an item or structure with a new one of similar kind and quality at today’s prices, without deducting for depreciation. Often used interchangeably with Replacement Cost Value (RCV).
Why It Matters for Contractors
Contractors need to replace tools, equipment, or materials quickly after a loss. Replacement value coverage ensures they receive enough to buy new items, not just the depreciated value—keeping projects moving forward.
Example
A contractor’s air compressor is destroyed in a fire. With replacement value coverage, the insurance company reimburses the full cost of purchasing a brand-new compressor, rather than a reduced amount based on its age.
Reinstatement
Definition
The process of restoring a lapsed or canceled insurance policy back into force, typically after a missed payment or temporary lapse in coverage. Reinstatement may require payment of past-due premiums and insurer approval.
Why It Matters for Contractors
Contractors can’t afford gaps in coverage due to nonpayment or missed deadlines. Reinstatement gives them a second chance to keep their protection active—important for compliance with contracts and licensing requirements.
Example
A contractor’s general liability policy is canceled for nonpayment. Within the insurer’s allowable timeframe, the contractor pays the overdue premium and requests reinstatement, restoring the policy without needing to apply again from scratch.
Rider
Definition
A rider is an amendment or addition to an insurance policy that modifies, extends, limits, or adds coverage to the base policy. Riders allow policyholders to customize coverage for specific needs.
Why It Matters for Contractors
Contractors often face unique risks that aren’t fully covered by standard policies. A rider can add protection—like coverage for rented equipment or specialized tools—without needing a whole new policy.
Example
A contractor adds a rider to their general liability policy to cover rented scaffolding equipment used on a specific project. This ensures they’re covered for any damage or liability related to that rented gear.
Risk Transfer
Definition
The process of shifting financial responsibility for certain risks from one party to another, typically through contracts or insurance. This ensures that if a loss occurs, another party (like an insurer) bears the cost.
Why It Matters for Contractors
Contractors regularly use risk transfer by purchasing insurance or including clauses in subcontractor agreements. It protects their business from bearing full liability for injuries, property damage, or project delays caused by others.
Example
A general contractor hires a roofing subcontractor and includes an indemnity clause requiring the subcontractor to carry liability insurance and name the GC as an additional insured—effectively transferring risk related to roofing work.
Retrospective Rating
Definition
A premium calculation method where the final insurance premium is adjusted based on the insured’s actual loss experience during the policy period. It starts with a provisional premium and is later recalculated using a formula that considers claims and expenses.
Why It Matters for Contractors
For contractors with large or complex operations, retrospective rating offers a more customized pricing model. If they maintain low claims, they may pay less than a standard premium—encouraging strong safety practices.
Example
A large commercial contractor agrees to a retrospective rating workers’ compensation policy. At year’s end, the contractor had very few claims, so the insurer recalculates the premium and issues a refund based on the favorable loss history.
S
Short-Rate Cancellation
Definition
A method of canceling an insurance policy before its expiration date where the insurer refunds the unused premium minus a penalty. Unlike pro-rata cancellation, short-rate cancellation results in the policyholder receiving less than a proportional refund.
Why It Matters for Contractors
If a contractor cancels a policy early for any reason other than non-payment or insurer request, they may be subject to short-rate cancellation, meaning they’ll receive a smaller refund due to administrative or early-termination fees.
Example
A contractor cancels a commercial auto policy three months into a one-year term. Instead of getting 75% of the premium back, the insurer applies a short-rate penalty, refunding only 65% to account for early cancellation.
Subrogation
Definition
The legal right of an insurance company to pursue a third party that caused a loss to the insured, in order to recover the amount paid out on a claim. Once the insurer pays the claim, it “steps into the shoes” of the insured to seek reimbursement.
Why It Matters for Contractors
If a contractor suffers a loss due to someone else’s negligence (e.g., a supplier or subcontractor), subrogation allows the insurer to recover those costs—potentially preventing premium increases and protecting the contractor from long-term financial impact.
Example
A contractor’s equipment is damaged due to a delivery driver’s mistake. The insurer pays the claim, then uses subrogation rights to recover the cost of the damage from the delivery company’s insurer.
Solicitor
Definition
An insurance professional licensed to sell or solicit insurance policies on behalf of an agent or broker but cannot issue policies or bind coverage independently. They typically work under the supervision of a licensed agent.
Why It Matters for Contractors
A solicitor may be the first point of contact when seeking quotes or learning about coverage options. Understanding their role ensures contractors know who has the authority to finalize or modify their insurance policy.
Example
A solicitor working for an insurance agency discusses coverage options with a contractor and gathers application details. However, the final policy is issued and approved by the supervising agent.
Sprinkler Insurance
Definition
A type of property insurance endorsement or specialized coverage that protects against damage caused by automatic fire sprinkler system malfunctions, discharges, or failures. It may also reduce premiums when a sprinkler system is present.
Why It Matters for Contractors
For contractors working on commercial buildings with sprinkler systems, sprinkler insurance ensures protection not just from fire—but also from accidental water damage caused by system leaks, bursts, or misfires.
Example
A contractor working on a commercial renovation accidentally triggers a sprinkler head, causing water damage to building materials. Sprinkler insurance helps cover the cost of cleanup and material replacement.
Surcharge
Definition
An additional charge added to an insurance premium, typically due to increased risk factors such as past claims, traffic violations, lapses in coverage, or hazardous operations.
Why It Matters for Contractors
Contractors may face a surcharge on their policy if they have frequent claims, safety violations, or operate in high-risk trades. Understanding surcharges helps contractors proactively manage risk to keep insurance costs down.
Example
A contractor has two workers’ compensation claims in one year. Upon renewal, the insurer adds a surcharge to the premium to account for the increased risk.
Surrender
Definition
The act of voluntarily terminating a life insurance policy before its maturity or death benefit payout, in exchange for the policy’s cash surrender value—if applicable.
Why It Matters for Contractors
Contractors with permanent life insurance (e.g., whole or universal life) may choose to surrender a policy to access built-up cash value for business needs, but this also ends coverage and may result in tax consequences.
Example
A contractor holding a whole life policy for 15 years decides to surrender it to access $20,000 in cash value to fund equipment purchases. The insurer cancels the policy and issues the surrender value minus any fees.
T
Team and Vehicle Insurance
Definition
A historical or less common type of commercial auto insurance designed to cover teams (such as horses and drivers) and their vehicles (like wagons or carts) in transit. In modern terms, this concept is now integrated into commercial auto insurance for business vehicles and work crews.
Why It Matters for Contractors
While rarely used by name today, the concept behind team and vehicle insurance evolved into policies that protect company vehicles, drivers, and passengers—essential coverage for contractors transporting tools, materials, or teams to job sites.
Example
A contractor uses several trucks and work vans to move equipment and crew across job sites. Their commercial auto insurance—modern successor to team and vehicle insurance—covers these vehicles and drivers for accidents, liability, and damages.
Title Insurance
Definition
A type of insurance that protects property buyers and lenders against financial loss due to defects in the property title, such as liens, ownership disputes, or undisclosed encumbrances, that existed before the policy was issued.
Why It Matters for Contractors
Contractors purchasing or developing land or commercial property can face serious delays or legal issues if title problems arise. Title insurance helps safeguard against unexpected claims that could threaten ownership or project timelines.
Example
A contractor buys a parcel of land to build a warehouse. Months into construction, a previously unknown lien surfaces. Title insurance covers the legal fees and lien settlement, allowing the project to continue without financial setback.
Tool Floater
Definition
A type of inland marine insurance policy that provides coverage for tools and small equipment owned by a contractor or business, whether on the job site, in transit, or temporarily stored off-site.
Why It Matters for Contractors
Standard property insurance may not cover tools once they leave the main business location. A tool floater ensures essential equipment is protected from theft, damage, or loss—helping contractors stay on schedule and avoid costly replacements.
Example
A contractor’s toolbox is stolen from a truck at a job site. Their tool floater policy covers the replacement cost of the stolen tools, minimizing disruption and out-of-pocket expense.
U
Underwriting
Definition
The process by which an insurance company evaluates the risk of insuring a person or business and determines the appropriate coverage terms, conditions, and premium based on that risk.
Why It Matters for Contractors
During underwriting, insurers assess factors like the contractor’s trade, claims history, revenue, number of employees, and safety practices. A favorable underwriting profile can lead to better rates and broader coverage.
Example
A roofing contractor applies for general liability insurance. The insurer’s underwriting team reviews the business operations and notes a history of past claims, resulting in a higher premium and a few policy exclusions.
Uninsured Motorist Bodily Injury (UMBI)
Definition
A type of auto insurance coverage that pays for medical expenses, lost wages, and other injury-related costs if you or your passengers are injured in an accident caused by a driver who has no insurance.
Why It Matters for Contractors
Contractors and employees who drive for work face exposure to accidents. If hit by an uninsured driver while on the job, UMBI ensures their medical bills and lost income are covered—protecting the business from unexpected financial strain.
Example
A contractor is rear-ended by an uninsured driver while transporting tools to a job site. UMBI coverage pays for the contractor’s medical treatment and recovery time, since the at-fault driver has no insurance.
Umbrella Policy
Definition
A type of liability insurance that provides extra coverage beyond the limits of a contractor’s primary policies, such as general liability, commercial auto, or employer’s liability. It kicks in when the limits of those policies are exhausted.
Why It Matters for Contractors
Large claims or lawsuits can easily exceed standard policy limits. An umbrella policy offers added protection—safeguarding the contractor’s business assets and financial future against catastrophic losses.
Example
A general liability claim results in a $2.5 million judgment, but the contractor’s policy has a $1 million limit. Their umbrella policy covers the remaining $1.5 million, preventing major out-of-pocket costs.
W
Workers Compensation Insurance
Definition
A legally required insurance policy that provides medical benefits and wage replacement to employees who suffer job-related injuries or illnesses. In return, employees generally waive the right to sue their employer for negligence.
Why It Matters for Contractors
Construction and trade work are high-risk industries. Workers’ compensation insurance protects contractors from costly lawsuits and ensures injured employees receive timely care and income while recovering—helping maintain compliance and workforce trust.
Example
A carpenter working for a contractor falls off a ladder and breaks his leg. The contractor’s workers’ compensation insurance pays for his hospital bills and a portion of his lost wages while he’s unable to work.
Waiver of Subrogation
Definition
A contractual provision in which the insured’s insurance company agrees not to seek reimbursement from a third party who may have caused or contributed to a loss. It prevents the insurer from exercising its right of subrogation.
Why It Matters for Contractors
Many project owners and general contractors require a waiver of subrogation to limit liability disputes. Including this waiver in contracts helps avoid legal conflicts between subcontractors, contractors, and insurers after a claim.
Example
A subcontractor accidentally causes water damage on a job site. The general contractor’s insurer pays for the repairs but, because of a waiver of subrogation in the subcontract agreement, the insurer cannot pursue reimbursement from the subcontractor.
Wrap-Up Policy
Definition
A comprehensive insurance policy that provides coverage for all parties involved in a construction project, including the project owner, general contractor, and subcontractors. It typically includes general liability and workers’ compensation under one centralized policy.
Why It Matters for Contractors
A wrap-up policy simplifies insurance on large construction projects by reducing overlapping coverages, eliminating coverage gaps, and often lowering costs. It also ensures all participants are covered under the same policy terms.
Example
A city government launches a multi-million-dollar stadium build and purchases an Owner Controlled Insurance Program (OCIP). All subcontractors working on the project are covered under the wrap-up policy instead of providing their own individual coverage.
Understanding insurance can feel overwhelming, but ACI’s agents are here to guide you. Reach out today with any questions or to get a quote designed for your business needs.
