What is contractor insurance?
Contractor insurance protects your business from financial losses in the case of a serious work-related incident, such as bodily injury, property damage, theft of equipment, and legal disputes.
For example, if you accidentally damage the property you’re working on and your client holds you liable for the damages, contractor insurance could cover the costs of the claim.
Finding the right contractor insurance policy for your business will depend on various factors, such as the work involved and where it’s located. While you can usually get all the necessary coverage from one insurance company, you’ll likely need to combine several types of business insurance to cover all the potential risks.
How much does contractor insurance cost?
Contractor insurance costs anywhere from several hundred dollars a year for basic contractor liability insurance to several thousand dollars for comprehensive coverage that includes commercial property and workers’ compensation.
The amount you pay for coverage depends on many factors, such as the following:
- Where you operate
- The size of your business
- The number of people you employ
- Your annual revenue
- The types of projects you do
- The type of equipment you use
In some cases, smaller contractor businesses may be able to pay a lower flat fee for basic coverage on specific projects. Larger companies and projects come with more risk and, therefore, may require more robust insurance plans.
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Who needs contractor insurance?
Many states and cities require some amount of insurance — typically general liability insurance — to operate.
All states but Texas require you to carry workers’ compensation insurance if your business has one or more employees. Even if there is no legal requirement in your area, it is always best practice for you to carry some amount of coverage.
Contractor insurance protects you if a client gets sick or hurt due to your work or if you accidentally damage their property while on the job. Depending on the type of coverage you buy, insurance can also protect equipment, materials, and other property you use in your work. Contractor insurance may also cover your lost revenue if your business has to close temporarily as a result of an incident or natural disaster.
What happens if a contractor is not insured?
Not having contractor insurance can be financially devastating for both you and your client. If an accident occurs on the job and you’re not insured, either of you may be held personally responsible for any resulting injuries or damages. This means that you could be liable for paying the costs associated with medical expenses, lost wages, repairing or replacing property, and any other damages. If a lawsuit is filed against you, you could also have to pay the legal fees.
What does contractor insurance cover?
The specific coverages included in a contractor insurance policy vary depending on your unique circumstances and risk exposure.
Typical coverages included in a contractor insurance policy are general liability, professional liability, commercial property, workers’ comp, and inland marine.
To determine which coverages are right for you, take the time to assess your needs. If you need help deciding which of these coverages are necessary for your business, talk with an experienced insurance professional who can guide you in selecting a policy that covers your risks and the requirements of state and local laws in your area.
General liability insurance
Also known as business liability insurance, this type of coverage protects you and your business from claims of bodily injury and property damage. For example, if you’re installing cabinets and accidentally ruin the flooring, the client could sue you for the cost of repairs. General liability insurance can help cover the costs.
Workers’ compensation insurance
Workers’ compensation protects workers who get sick or injured while on the job, covering medical and rehab payments and lost wages. It can also provide legal representation should an employee sue due to workplace negligence. Workers’ comp is legally required in every state except Texas for any company with employees.
This type of coverage is especially important in the construction industry where you and your employees regularly work with potentially dangerous equipment. For example, if a worker gets electrocuted from faulty electrical equipment, workers’ comp would cover their medical expenses and lost pay.
Professional liability insurance
Also called errors and omissions (E&O) insurance, this type of insurance protects your business if you make mistakes in the delivery of your services. In certain cases, it can also protect from damages resulting from contractual disputes, negligence, and even failure to perform professional duties.
If you make a mistake in managing a project and this leads to quality issues or missed deadlines, your client could sue you for financial losses. Your professional liability insurance would cover the legal expenses and costs of any damages.
Commercial property insurance
This type of policy protects you from financial losses if your business property is damaged due to fire, theft, vandalism, and other hazards. This type of insurance covers both owned and leased equipment property, such as equipment and tools.
Say your storage facility, which holds materials, is damaged by a storm. Commercial property insurance would cover the cost of repairing or replacing the damaged property.
Commercial auto insurance
Commercial auto insurance covers the vehicles you use for business and protects you from financial losses due to accidents, such as injuries and property damage. If you’re in an automobile accident on the job, this type of policy will cover any injuries to those involved and any damages to the car.
Regular personal auto insurance typically won’t cover vehicles used for business purposes. It’s important to make sure that vehicles used by employees for business purposes are also covered by commercial auto insurance so that everyone is protected in case of an accident.
Inland marine insurance
Inland marine insurance is designed to protect your business’s property while it’s in transit or stored temporarily in a moveable location. This type of insurance can cover a variety of risks, such as loss or damage of construction materials or tools being moved to a job site. It can also protect any equipment you’ve borrowed if it gets stolen or damaged while in your care.
Business interruption insurance
Business interruption insurance provides coverage for your lost income and extra expenses if your business operations are interrupted or suspended due to an unforeseen event, such as a natural disaster.
If your workshop is damaged by a fire, causing you to temporarily halt business operations, business interruption insurance could cover your lost income, as well as extra expenses like moving temporarily to a new workshop location.
Home-based business insurance
Home-based business insurance is designed for those who run their business from their home. It can help cover property damage, business-related injuries, and lawsuits. Since most homeowners insurance policies include only a small amount of coverage for the business property kept at home, we recommend getting home-based business insurance in addition to your homeowners’ insurance.
For example, if one of your clients is injured due to your operations or an expensive piece of equipment is stolen from your work truck, you probably won’t be covered by your traditional homeowner or auto insurance policies. Home-based insurance can fill in this gap in coverage.
Cyber liability insurance
Cyber liability insurance is specialized insurance that can protect your business from potential financial losses due to data breaches, privacy issues, and other cyber liabilities. While this coverage isn’t standard among contractors, it can be valuable if you digitally store sensitive data (such as payment information) or proprietary customer data. In these cases, cyber liability can cover first-party costs — such as investigation, notification of customers, defense/response to incidents, and public relations — and third-party costs like legal fees or damages associated with network security lawsuits.
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Examples of contractor insurance claims
As a contractor, you should understand the risks you face and the types of insurance available to guard against them.
Here are some common contractor insurance claims that demonstrate why having an appropriate policy is so important.
- Damage to other people’s property: One common contractor insurance claim includes damage to other people’s property, such as a customer’s home or business. This could range from minor damage, like scratches and dents caused by careless handling of tools, to more serious accidents resulting in structural damage.
- Bodily injuries to others: Another common claim for contractors is for physical injuries sustained by members of the public at a job site. For example, if you inadvertently injure someone while using a power tool or ladder, the claim could cover any medical costs incurred as a result of their injury.
- Damage to tools and equipment: Damage to tools or equipment is another common contractor insurance claim. This could be due to vandalism, accidents on the job site, or weather-related incidents. In these cases, insurance may cover the costs of replacing or repairing any damaged items.
- Stolen tools and equipment: If your business’s tools or equipment are taken from a job site, contractor’s insurance may be able to cover the cost of replacing them. This could also include losses incurred due to the theft of sensitive data or information critical to your business operations.
- Water damage: Water damage is another common contractor insurance claim, especially during wet weather conditions. For example, if you neglect to waterproof the basement of a building you are working on, you may be liable for damages caused by flooding. In this case, insurance may help to cover the costs of repairing water-damaged areas or replacing water-damaged tools or materials.
- Bodily injuries to workers: If an accident occurs at a job site and it results in injury or death, you may be held responsible for related medical costs. Contractor insurance can cover the costs of such claims and any legal fees or settlement costs.
