Contractor Insurance: What Policies Are Essential?

As a small contractor, you should consider several types of insurance to protect yourself and your business. Depending on the type of work you do, you may need general liability insurance, errors and omissions insurance, workers' compensation insurance, commercial auto insurance, and commercial property insurance, among others.

General liability insurance covers common business risks like customer injuries, property damage, and advertising injuries. Errors and omissions insurance, also known as professional liability insurance, protects you if a client sues you for inadequate work or failing to meet a deadline. Workers' compensation insurance covers medical costs and lost wages for work-related injuries and illnesses. Commercial auto insurance is necessary if you use a vehicle for business purposes, and commercial property insurance covers damages to your business property or equipment.

By having the appropriate insurance coverage, you can protect yourself from financial losses, legal fees, and potential lawsuits. It is important to assess your specific needs and consult with an insurance professional to ensure you have adequate coverage for your small contracting business.

Commercial General Liability Insurance

General liability insurance is often required by project owners and licensing agencies. It can be bundled with a Business Owner's Policy (BOP), which combines general liability insurance and commercial property insurance, usually at a discounted rate. This type of insurance is essential for small contractors to protect their business and manage their risk effectively.

Additionally, general liability insurance can help cover legal fees and judgments if you are sued due to business activities. It also includes professional liability coverage, also known as errors and omissions (E&O) insurance, which protects you in case of business disagreements or accusations of professional negligence. This type of insurance is designed to protect your business from financial losses related to accidents, injured employees, legal fees, and damaged vehicles.

General liability insurance is particularly important for small contractors because it can provide peace of mind and help you win contracts. Many clients require proof of insurance before hiring contractors, and having adequate coverage demonstrates your credibility and commitment to safety.

Workers' Compensation Insurance

As a small contractor, you may also want to consider including business owner's coverage in your workers' compensation policy. This will provide additional protection if you run your own business.

The cost of workers' compensation insurance depends on several factors, such as the number of employees, the type of work, the business location, and the claims history. For example, contractors in physical trades typically pay a higher rate due to the risks involved in their work.

In summary, workers' compensation insurance is essential for small contractors to protect themselves and their employees from financial losses due to workplace injuries or illnesses. It is important to comply with state regulations and include any necessary additional coverage to ensure adequate protection.

Commercial Auto Insurance

The cost of commercial auto insurance can vary depending on several factors, including the industry, vehicle type and value, and the level of risk involved in the business operations. On average, commercial auto insurance costs around $147 per month, but rates can go up to $150 per month for high-risk industries.

When purchasing commercial auto insurance, contractors should consider the unique needs of their business. For example, a plumber who uses their van infrequently may require less coverage than a painter who uses their car daily. Additionally, contractors should ensure their policy complies with state regulations regarding minimum coverage amounts for bodily injury liability and property damage liability.

In conclusion, commercial auto insurance is an essential form of protection for small contractors who rely on vehicles to conduct their business. By purchasing this insurance, contractors can safeguard their business from the financial fallout of auto accidents, ensuring they can continue their operations without significant disruption.

Errors and Omissions Insurance

E&O insurance is particularly relevant for independent contractors, who can be held liable for harming a third party or their property, just like small-business owners. It can also be a requirement for signing contracts and leases. For example, real estate agents and brokers are mandated to carry an E&O policy in certain states.

The cost of E&O insurance varies depending on factors such as business size, risk, and claims history, but it typically costs around $61 per month. Small business owners can generally expect to pay annual premiums between $400 and $1,000.

While E&O insurance is an important coverage for small contractors, it is important to note that it does not cover all liabilities. Intentionally dishonest acts, work in progress, and work done by subcontractors are typically excluded from this type of insurance.

Builders Risk Insurance

Any person or company with a financial interest in the construction project needs Builders Risk Insurance. This includes architects, engineers, contractors, and subcontractors. The general contractor will usually purchase the builder's risk policy and act as the primary insured, with the building owner and subcontractors listed as additional insureds.

A standard Builders Risk Insurance policy covers buildings and structures under construction, as well as equipment on-site, in transit, or at other locations. It can also help cover additional soft costs, or expenses not directly related to construction, if property damage causes a delay. This can include additional interest on loans.

• Materials in transit
• Back-up of sewers, drains, or sumps
• Flood and earthquake coverage, in some states
• Documents and data, such as blueprints and specifications
• Temporary structures, such as scaffolding or signs
• Soft costs, such as architect fees, penalties owed to the local government, and additional real estate taxes
• Protective measures, such as debris removal and pollutant cleanup
• Recertification fees for repairing a building that had previously received green energy certifications

It is important to note that Builders Risk Insurance does not cover all risks. Exclusions may include:

• Damage from earthquakes, floods, wind, or beach zones (although extensions may be available)
• Acts of terrorism and war
• Mechanical breakdowns
• Damage due to faulty design or workmanship
• Ordinary wear and tear
• Damage that occurs after a project is finished

The cost of Builders Risk Insurance typically accounts for 1% to 5% of a business's total construction budget and depends on various factors, such as the cost, location, timeline, and square footage of the project, as well as the expertise of the contractors and the quality of materials used.

Frequently asked questions