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Subcontractors Default Insurance (SDI) or Subguard is one of the essential tools that general contractors should have in the construction industry. This insurance aims to give protection to the contractors in case a subcontractor breaches the contract.
The growth of Subcontractor Default Insurance policy comes in tandem with more complex and competitive construction projects, so it is more crucial than ever for contractors to understand how SDI works. Otherwise, they risk losing their money investment as well as ruin their project deadlines.
It is a type of insurance that ensures coverage for general contractors in case a subcontractor does not adhere to a particular contract. Apparently, this default can involve, but is not limited to, the following:
“Failure to perform: The subcontractor fails to ensure the terms of the contract are met.
Insolvency– The subcontractor has gone bankrupt and is unable to honour his side of the contract.
Abandonment – For reasons unknown once the subcontractor has started the project he walks away.
SDI however is not unlike other traditional surety bonds. It focuses on securing the general contractors from incurring losses related to the failure of a subcontractor.
Therefore, this ultimately allows the contractor to have a better management of the contractor risk and rights to speed up the entire claims process of the project.
There are several advantages of SDI for general contractors. These include;
Control over Risk Management: The contractor has the option of setting a benchmark for a default of a subcontractor instead of having to blindly follow the surety company’s set standards.
Insurance Coverage for Indirect Costs: SDI policies tend to allow not only for direct costs when in the process of completion but also other indirect costs such as liquidated damages, project delay, and extended overhead.
Broad Coverage: Spend time writing one contract and issue a single polices across numerous or multiple subcontractors on a project.
Flexibility: Choosing from varied policy structures including a policy which allows retrospective premium adjustments based on performance.
By purchasing an SDI policy, general contractors are transferring the risk of defaulting on their subcontractors to an insurance company. Generally these steps occur:
Insurance Policy: Depending on the completion timelines, the contractor’s prequalification and management of subcontractors are all evaluated by the insurer to determine risk and costs.
Coverage Clause: Performance default, insolvency, and many other events will be covered in the scope of the policy.
Claims Process: If a subcontractor defaults, the contractor is able to file a claim with their insurance company and the firm will proceed to investigate whether the claim is valid and pay out the covered loss.
Subguard insurance policies typically cover:
Direct Costs:
Indirect Costs:
The price of Subguard insurance is influenced by a number of factors which most of the time differ from state to state, country to country.
Typical monthly premiums for Subguard insurance can range widely. For instance:
| Provider | Monthly Cost | Annual Cost |
| NEXT | $1,300 | $15,600 |
| Liberty Mutual | $2,000 | $24,000 |
| Berkshire Hathaway | $3,000 | $36,000 |
| Zurich | $3,500 | $42,000 |
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Always target construction-oriented insurance providers for SDI. The best include:
They are well known for a heavy focus on construction projects and personal service. General contractors can turn out to be their ideal customer as they get specific policies that are constructed for them.
Pros:
Cons:
Rating: 9/10
Along with SDI, they also provide a variety of insurance products. In these respects, they are well-known – flexibility of policy terms and solid financial strength.
Advantages:
Cons
Rating: 8/10 .
The NEXT Insurance is quite impressive because it has made a niche for itself in offering its services to small contractors. Offering subcontractor default insurance and other services of subcontracting seem easy with their site.
Rating: 9/10
Has been at the forefront of developing SDI products since the late 1990s. They have earned a compelling reputation as reliable providers of cover and also assist greatly throughout the prequalification of the subcontractor process.
Rating: 8.5/10
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