Do you run a contracting business? If the answer is yes, you probably already know you face several risks and can benefit from contractors insurance. In a nutshell, contractors insurance is a group of policies that cover risks typically faced by contractors.
How Does Contractors Insurance Work?
Contrary to popular belief, insurance providers don’t offer a policy known as contractors insurance. Instead, they sell individual policies like commercial property, builder’s risk, and general liability. You just need to select the policies that suit your operations best.
Some providers also offer bundled contractors insurance known as business owner’s policy (BOP). These include essential coverages that are offered at a discounted rate. Most BOPs usually include commercial property insurance and general liability insurance.
Commercial property insurance covers the replacement or repair of a business party when damaged by a covered event. On the other hand, general liability insurance covers the cost of third-party lawsuits. Some contractors may also invest in other vital policies like workers’ compensation and commercial auto insurance.
Who Needs Contractors Insurance?
Regardless if your business is a one-person operation or if you have hundreds of employees working for you, contractors insurance provides the protection your business needs so you’ll win more new clients.
If your business meets the following criteria, you’ll find investing in contractors insurance to be extremely beneficial:
- You are a subcontractor to a general contractor
- Your clients require liability insurance
- Your business has work vehicles or automobiles
- You hire employees
- You have valuable assets to protect like construction materials or heavy equipment
- Your employees drive personal vehicles between different worksites
What Common Trades Need Contractors Insurance?
Contractors insurance cover contractors belonging to diverse building trades. Some common trades that require contractors insurance include:
- Carpenter
- Appliance repair
- Cleaners
- Debris removal
- Electrician
- Demolition
- Framing
- Flooring
- Excavation
- General contractor
- Handyman
- Masonry
- Landscaper
- Plumber
- Roofing
- Steel erection
What are the Most Common Types of Contractors Insurance?
General Liability Insurance
This covers third-party lawsuits over bodily injury, property damage, and advertising injuries. Anyone who doesn’t work for you (i.e., visitors, clients, and delivery people) is considered third party. If someone claims you are responsible for their damages, general liability insurance will cover your legal defense.
Workers’ Compensation Insurance
This is a state-mandated coverage that has two parts. Part one covers an injured employee’s medical bills and lost wages. It also covers benefits given to survivors if the employee dies on the job. Part two is employer’s liability, which covers the legal costs if an employee sues for negligence.
Commercial Property Insurance
If your contractor business owns vehicles, you should consider commercial auto insurance a necessity. Just like personal auto insurance, commercial property insurance covers other people’s injuries and damage when you are responsible.
Contractors Equipment Insurance
Contractors need contractors equipment insurance to protect their tools as they move from one job site to another. Contractors equipment is also a type of inland marine policy. While commercial property is tied to one location, the inland marine policy goes where the property goes.
Professional Liability Insurance
Also known as contractors errors and omissions, professional liability insurance covers lawsuits over your employees’ mistakes or you. It will also cover your defense if a client claims financial loss because of your professional negligence. This insurance is helpful for contractors who design and build projects.
Builder’s Risk Insurance
This type of inland marine policy insures structures during the construction and building materials at the job site. These policies are typically written for individual projects, and they usually cover damages caused by fire, vandalism, and other weather events.
Contractor Bonds
While not strictly insurance, surety bonds act as a guarantee that completes a project as the contract states. Bond issuers promise to reimburse clients in case you are not able to deliver on your contract.
There are four types of surety bonds contractors typically need:
- Performance bonds: Performance bonds guarantee the project is completed as outlined in the contract. If the project fails or takes too long to meet quality standards, the project owner can make a claim on the performance bond.
- Payment bonds: These bonds guarantee payments for suppliers and protect project owners from covering the costs if you can’t.
- Bid bonds: Bid bonds prevent contractors from submitting unrealistic bids. They guarantee compensation for the project owner in case you fail to honor the proposal. Not all projects, however, will require bid bonds.
- Contractor license bonds: The bonds are required by law at the city, state, or county level. Without a license bond, a contractor cannot get licensed and can face a fine if they work in the area.
Conclusion
Independent tradesmen, contractors, and subcontractors face several risks in their work. From injuries to unhappy clients to lawsuits, the liabilities are aplenty. That said, it would be a smart move to invest in comprehensive insurance protection if you are hit with an unexpected disaster or lawsuit.
