Insurance Requirements for Contractors

Owning a contracting business is an exciting career choice. You can work with your hands, build things, repair things, be creative, and make a lot of money while you are at it. However, like any business, you do have certain responsibilities that you need to consider when you are starting up. One of those responsibilities is getting the right insurance. 

By its very nature, being a contractor comes with risk. In some cases, that risk can be significant. You and your employees are working on job sites and entering client homes on a daily basis. There may be heavy equipment, heights, and sharp tools to think about. As a responsible contractor, it’s important that you have insurance coverage to protect you, your business, your employees, your clients, and your property. Here are the insurance requirements for contractors. 

General Liability Insurance

Working on job sites and going to the homes of your clients comes with very big risks. You could damage their property, or someone could get hurt. No matter how many safety precautions you take, there is always a chance that something could happen. It is your responsibility to make sure that you have coverage to protect your business if you get sued because of such a situation. 

For example, a client could come onto the site to check on your progress. While they are there, they trip on a tool left lying on the ground, or that had been dropped only minutes before. They end up falling and hitting their head, resulting in serious brain injury. They may have to miss work, and spend time in the hospital. There is a significant cost to them, including medical bills and lost wages. Most likely they will end up suing you for reimbursement of those costs, as well as for additional harms like pain and suffering. 

Defending yourself in such a case can be incredibly expensive. There could be years of legal costs involved. Then you may also be held liable and have to pay a settlement or an award. General liability insurance will help pay for those costs so you won’t have to pay out of your business assets. Liability insurance can also protect against claims of slander, property damage, and more. 

Workers Compensation

Not only are clients at risk, but your employees are as well. They are the ones working around all of the heavy equipment, or at heights, or who might slip on wet floors when there is cleaning going on. Any contractors insurance package must have workers compensation as a part of it. Not only can employees become injured, but they can also get seriously ill, especially if they are working near hazardous materials, such as asbestos, while on the job. 

In the event that this happens, they will need to pay medical costs, rehabilitation costs for physical therapy, and they will most likely miss work and wages. Workers compensation provides them with funding so that they don’t have to worry about bills and other financial responsibilities while they are recovering. Instead, they can focus on healing and getting better so they can return to work safely. Your business is protected because you will not have to pay out of pocket for those costs. 

Errors and Omissions Insurance

Errors and omissions insurance (E&O) provides you with protection in case a client sues you for losses they have suffered as a result of your actions. This can happen with any type of service business, since clients are counting on you to complete your jobs professionally and without error. For example, if you are a financial planner and provide advice that leads to a loss for a client, there is a very good chance they will sue you. Even construction contractors can be sued for service-related problems. If you do not finish a project on time, it could lead to losses, such as rental income, or even from a special event getting canceled because a building isn’t ready. 

You might be the best in the world at what you do, but unfortunately errors can happen. Whether it’s you or an employee, nobody is perfect. Plus, you might not be at fault at all, but that doesn’t mean a client won’t sue you. Instead of being on the hook for your defense costs, e&o coverage can protect you. 

Commercial Property Insurance

Commercial property insurance will protect you against losses of property due to certain risky events, such as fires, vandalism, or natural disasters. As a contractor, you may have expensive equipment and a large shop, all of which would be very expensive to replace if they are damaged or destroyed. Commercial property insurance will protect you from having to pay those costs for anything you own and the property on which it sits. This can include equipment,  fixtures, inventory, and electronics. 

Commercial Automobile Insurance

Just like you cannot operate your personal vehicle without insurance, you also cannot operate your work vehicles without coverage. If you are a contractor, there is a good chance that you use vehicles of various sizes to transport equipment and materials, or to complete your jobs, such as excavators. 

Many people believe that their personal policies will be adequate coverage, even if they are not. For example, you might use your pickup truck to handle your day-to-day tasks of going to work, driving the kids to school, and picking up food at the grocery store. Your personal policy will provide coverage in those situations. However, if you are driving between job sites and hauling material, then there is additional risk involved, and you will require commercial auto insurance. The last thing you want is to discover that you don’t have the right coverage after you’ve had an accident and need protection. 

As a contractor, your business comes with certain risks that may not be present in other industries. While you might think that you can save money and not have insurance, nothing could be further from the truth. If you ever need protection and you don’t have it, the consequences could be devastating for your business. Make sure you have the right insurance to keep you, your business, your clients, and your staff fully protected.