Working as a contractor comes with its fair share of risks – especially if you’re in the construction industry. There’s a lot of room for error, and if you aren’t prepared, a single accident can cost you thousands of dollars. We have put together an exhaustive article regarding a guide to contractors insurance.
Fortunately, in the modern-day world, insurance can act as a backup plan by cushioning your financial burden in case of an unforeseen event.
So as a contractor, what type of insurance do you need to apply for? This comprehensive guide will walk you through everything you need to know.
Table of Contents
What Kind of Insurance Does a Contractor Need?
Contractors are recommended to apply for contractors’ liability insurance. It is an umbrella term that covers several different policies. It protects contractors from financial liabilities for work-related accidents.
This is why due to the immeasurable number of risks involved, construction businesses apply for contractors’ insurance more frequently, as opposed to any other business.
Why do you Need Contractors Insurance?
Aside from contractors insurance being mandatory in some states, at any given moment, a small accident can lead to everlasting consequences and even potentially put you out of business. While you can’t control what happens in your surroundings, you can control how you prepare for it.
Securing a contractors liability insurance protects you from financial liabilities in case your business is hit by a lawsuit. Similarly, it also shoulders the costs for accidents and injury claims by the affected parties.
Additionally, contractors insurance exhibits your sincerity towards employee and client safety. So this coverage can act as a stepping stone for the success of your business by helping you bag larger commercial contracts.
The majority of the professional contractors out there have contractors insurance. Not only can it make you look more credible, but it can also do wonders for your reputation.
Ready to get started? Our insurance agent can walk you through the process of applying for contractors insurance at extremely market competitive rates.
How to Know You Need Contractors Insurance?
Whether you’re an independent contractor or run a full-fledged business with hundreds of employees – here are some questions to ask yourself to determine if you need contractors insurance:
You have Plans for Business Expansion
Even if you’re working on small-scale projects now, that doesn’t mean you’ll stick with them forever. If you have any plans for business expansion in the near future, then make sure to first apply for contractors insurance.
Regardless of the size of your business, disasters come unannounced. Small business owners and entrepreneurs often do not prioritize purchasing contractors insurance. However, that’s one of the biggest mistakes one could make.
Start-ups normally do not have huge cash reserves that they could rely on in case things go south. So paying for financial liabilities from your pocket can bring you to the brink of bankruptcy. Applying for contractors insurance early on can help you prevent that altogether.
You Have Valuable Assets to Protect
Builders and contractors need to purchase thousands of dollars of assets before they start working on a project.
After that, you need to keep in mind the possibility of those assets getting lost, damaged or even stolen. In case this does happen, you need a backup plan to get compensated for the loss – and this is where contractors insurance comes in.
Your contractor’s insurance policy may also include builder’s risk coverage. Depending on your insurance provider, the coverage will provide monetary reimbursement for any stolen, lost or damaged equipment, materials and tools.
You Hire Employees
Managing a small team isn’t that difficult. However, the moment you decide to expand, it becomes necessary to apply for workers compensation.
If there are hundreds of employees working under you, then make sure that you have a workers compensation policy to back you up.
It covers the costs of on-the-job injuries sustained by your employees and also, compensates the family of the employee for work-related deaths.
Fortunately, the majority of the insurance providers include workers compensation in their contractor’s insurance policy.
You Work as a Subcontractor
Although a subcontractor doesn’t directly deal with the owner of the project, still, getting contractors insurance can be a great idea.
If you’re working as a subcontractor for the construction industry, then the chances are that you specialize in a certain niche. This commonly includes supplying or operating the construction equipment.
Regardless of the services you provide, contractors insurance can help you prepare for unforeseen circumstances. Judging by how common worksite accidents have become, it’s always better to stay safe than sorry.
You Regularly Use Automobiles for Work-Related Purposes
According to the U.S. Bureau of Labor about 40% of automobile accidents are work-related.
So regardless of the industry, if you frequently use vehicles to transport equipment, materials or tools, then don’t neglect the importance of commercial auto liability coverage.
Fortunately, a contractor’s insurance policy often includes commercial auto liability. It will help you cover the costs for any work-related property damage or injuries caused by you or your employees.
Is General Liability Different from Contractors Insurance?
You may have seen general liability and contractors insurance being used interchangeably, so are they the same? Pretty much.
Contractors often wonder what type of insurance they should purchase, so the term contractors insurance is just an umbrella term that they could refer to.
A contractor’s insurance policy always includes general liability. But is general liability insurance for contractors enough to smoothly run your business? Usually it isn’t because of the uncertainty involved in running a construction business.
This is why always check in with your insurance provider what other coverage your contractor insurance offers and evaluate if it meets your business requirements.
What does a Contractor’s Insurance Cover?
As we mentioned earlier, contractors insurance comprises multiple policies. The following coverages are the most common among them:
General Liability Insurance
General liability is always included in contractor insurance policies. It acts as a prerequisite to ensure that you’re successfully able to run your business.
It protects you from third-party claims for property damage and physical injuries at the worksite by providing adequate financial compensation. Depending on your provider, general liability insurance may also include other legal expenses.
Builders Risk Insurance
Materials, tools and equipment worth thousands of dollars are involved in construction projects. It isn’t uncommon for it to get damaged, lost or even stolen.
This is why builders, contractors as well as equipment owners always need to make sure that their contractor’s general liability insurance also covers builders’ risk.
One in ten construction site workers get injured every year, as reported by The Occupational Safety and Health Administration. Regardless of the safety measures you take, accidents occur in the blink of an eye. This is the reason contractors should always look for workers compensation in their insurance coverage.
As the name suggests, workers compensation covers the costs of medical treatment for employees for any on-the-job accidents. The policy also includes rehabilitation costs along with compensation to the employees’ family for work-related deaths.
Roofing contractors are at a higher risk of injury as they work at precarious heights. A small misstep or even a tool falling can lead to significant damage.
So roofers insurance is quite similar to general liability insurance as it covers the costs for any workplace accidents that may result in property damage or physical injuries and it’s often a part of contractors insurance.
A variety of heavy-duty vehicles and trucks are used to transport construction materials and equipment to the site. During transportation, in case these vehicles cause property damage or bodily injuries, automobile insurance will cover the costs for the claims filed by the affected parties.
Depending on the policy, it may also include costs incurred during litigation along with other legal expenses in case the matter is taken to court.
Contractors Pollution Insurance
Although it isn’t common, there’s a chance that your coverage may also include contractors pollution insurance. Keeping in mind how construction projects usually pose a prevalent risk of contributing to pollution, this coverage can protect you in case you violate an environmental law and get sued.
While most contractors do not focus on this, some cities have strict environmental laws and such claims can leave detrimental effects on a construction business.
Does an Independent Contractor Need Insurance?
Regardless of the size of your business, having contractors insurance is essential because of the following reasons:
Keeps You and Your Business Protected
Independent contractors are at just as big of a risk of getting sued as larger firms. In fact, in case of an unforeseen event, the latter often has enough financial reserves to compensate for the costs incurred.
So in case you’re involved in an accident or held liable for damages, you would have to cover up the costs from your pocket.
On the other hand, independent contractors normally do not have the funds to shoulder the claims. In the worst-case scenario, not having contractors insurance can even potentially make you run out of business.
However, having contractors insurance will address such issues and help you cover up the costs as well as financially protect business owners from lawsuits and legal issues.
Most Clients Require It
The larger the project, the higher the chances that your clients will require you to have general liability insurance for contractors. Without having one, you may not be able to get the contract. And it is only fair because insured contractors make clients feel financially secure.
Contractor’s liability insurance protects your clients in case of wrongdoing or on-the-job accidents where your team is at fault.
Required by Law in Some States
As per some state laws, it is mandatory for independent contractors to at least have general liability insurance – especially if you run a construction business. Normally, the rate of risk is higher in the construction industry as opposed to any other.
So check in with the laws of your state to make sure that you at least meet the minimum insurance levels.
What are the Insurance Requirements for Contractors?
There are two common ways for contractors to get insurance:
Apply for your Insurance Policy
This is the traditional way and pretty much how most insurance policies work. Search for a reliable insurance provider, get a quote, pay the premium and get insured.
Depending on the provider you choose, they might further streamline the process by making everything online. However, keep in mind that before you trust an insurance provider always make sure that they’re licensed.
Once you purchase the insurance policy, you can ask your provider to give you a certificate that you can show to your clients. Among the two options, this one is more straightforward and cost-effective.
So if you’re searching for a reliable insurance provider in the Southwest or specifically, Arizona, Nevada, Colorado and nearby areas then we’ve got you covered!
Let your Client Add you to Their Policy
There’s also an option for your clients to add you to their insurance policy during the duration of their job. However, we don’t recommend going for this.
It is easier for businesses to add multiple contractors to their insurance policy. But for your client, it can be a hassle and also feel like an unnecessary burden due to the additional paperwork.
And to top it off,, including a contractor to their policy will be more expensive for them. So unless there’s no other option, you’re better off getting your own insurance coverage.
Why is Buying Contractors Insurance Better than Individual Policies?
People often wonder if is it even necessary to buy contractors insurance? Can’t you simply go for individual policies instead? Well, you can, but we do not recommend it.
Here are some reasons why contractors insurance is better than individual policies:
Meets your Particular Needs
The coverage you need may vary depending on the industry you’re working in. However, if we strictly speak about the construction industry, then it’s safe to say that just commercial general liability wouldn’t be enough to protect you.
There are a variety of other policies like workers compensation and commercial auto liability that you’ll separately have to purchase.
Alternatively, contractors insurance can enable you to get everything you require under a single policy. This would help you avoid the hassle of individually reaching out to insurance providers.
Lighter on the Pocket
You probably already know that things often come cheaper in bundles – the same applies in the case of insurance.
Individually purchasing policies can astronomically increase the costs and put a huge dent on your bank account.
Keeping in mind how contractors require multiple coverages, purchasing contractors insurance will help you find a more affordable deal.
You can also read about saving on general contractors insurance for small businesses.
Deal with Only One Carrier
Purchasing individual policies often comes with its fair share of troubles. For starters, the chances are that you might have to deal with multiple insurance carriers.
This includes ensuring that you are clearing the payments of each of your insurance providers in a timely fashion – which at times, can be difficult to keep a track of.
Instead, if you apply for contractors insurance, you’ll only deal with one carrier. As a result, managing your policies will become much easier for you.
What Industries Normally Apply for Contractors Insurance?
Contractors insurance isn’t only useful for construction businesses. As it covers a wide variety of policies, the following industries can also significantly benefit from it:
Flooring and Renovations
Heating and Cooling Contracts
Apart from the ones mentioned above, there are dozens of other industries that can apply and benefit from contractors insurance. However, it’s mainly popular among construction businesses due to the nature of their job and the high risks involved.
Why Choose Professional Insurance Strategies?
Starting a business comes with its fair share of challenges and risks. That’s why good planning can be the key to success in the business world. This also includes preparing yourself for the unforeseen. While you can’t prevent what’s meant to happen, what you can do is to have a backup plan so an accident doesn’t drain all your funds.
This is the reason why every business owner, especially those who work in the construction industry need contractors insurance. Depending on the coverage you purchase, it can prepare you for just about any obstacle that may come in your way.
At the same time, contractors insurance can give you peace of mind in case of an accident in which you or your workers are involved.
With that said, the biggest problem contractors face is to find an insurance provider that understands the demands of each business. And then, prepare a coverage tailored according to those specific requirements. This is where Professional Insurance Strategies truly excels!
Working as an independent insurance provider for more than 20 years in Phoenix, AZ, we’ve helped numerous businesses secure a contractors insurance coverage. So get in touch with us today for a market competitive quote!
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